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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________to ___________
Commission file number 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
MASSACHUSETTS 04-2776269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
195 WEST STREET
WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 487-9900
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
(Continued)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant:
The aggregate market value of Common Stock held by nonaffiliates was
$558,509,902 as of September 19, 1997.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
As of September 19, 1997, there were 20,099,320 shares of the
registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's 1997 Annual Report to Stockholders for
the fiscal year ended June 30, 1997 are incorporated by reference into Parts II
and IV of this report.
Specified portions of the Registrant's Proxy Statement dated September 19, 1997
for the Annual Meeting of Stockholders to be held on November 13, 1997 are
incorporated by reference into Part III of this report.
(End of cover page)
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PAREXEL INTERNATIONAL CORPORATION
FORM 10-K ANNUAL REPORT
INDEX
PAGE
PART I.
Item 1. Business 4
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security 20
Holders
PART II
Item 5. Market for Registrant's Common Equity and 21
Related Stockholder Matters
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of 21
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants 21
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the 21
Registrant
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners 21
and Management
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 22
SIGNATURES 27
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PART I
ITEM 1. BUSINESS
GENERAL
PAREXEL International Corporation ("PAREXEL" or "the Company") is a
leading contract research organization ("CRO") providing a broad range of
knowledge-based product development and product launch services to the worldwide
pharmaceutical, biotechnology and medical device industries. The Company's
primary objective is to help clients quickly obtain the necessary regulatory
approvals of their products and, ultimately, optimize the market penetration of
those products. Over the past fifteen years, PAREXEL has developed significant
expertise in disciplines supporting this strategy. The Company's service
offerings include: clinical trials management, data management, biostatistical
analysis, medical marketing, clinical pharmacology, regulatory and medical
consulting, performance improvement, industry training and publishing, and other
drug development consulting services. PAREXEL's integrated services, therapeutic
area depth, and sophisticated information technology, along with its experience
in global drug development and product launch services, represent key
competitive strengths.
The Company believes it is the fourth largest CRO in the world, based
on annual net revenue, and one of a select few providers capable of delivering a
full range of clinical development and medical marketing services on a global
basis. The Company complements the research and development ("R&D") functions,
as well as the marketing functions, of pharmaceutical and biotechnology
companies. Through its high quality clinical research and product launch
services, PAREXEL helps clients maximize the return on their significant
investments in research and development by reducing the time and cost of
clinically testing their products and launching those products into the
commercial marketplace. By outsourcing these types of services, clients are
provided with a variable cost alternative to the fixed costs associated with
internal drug development and product marketing. Clients no longer need to staff
to peak periods, and can benefit from PAREXEL's technical resource pool, broad
therapeutic area expertise, global infrastructures designed to expedite
parallel, multi-country clinical trials, and other advisory services focused on
accelerating time-to-market.
Headquartered near Boston, Massachusetts, the Company has 20 offices in
10 countries, and employs over 2,400 individuals. The Company has established
footholds in the major health care markets around the world, including the
United States, Japan, Germany, the United Kingdom ("U.K."), France, Italy,
Spain, Sweden, Australia, and Israel. The Company believes it is the second
largest clinical CRO in both Europe and Japan. During fiscal 1997, PAREXEL
derived 36% of its revenues from its international operations, distinguishing
the Company from many of its competitors.
The Company, a Massachusetts corporation, was co-founded in 1983 as a
regulatory consulting firm by Josef H. von Rickenbach, Chairman of the Board,
President and Chief Executive Officer of PAREXEL. Since that time, the Company
has executed a focused growth strategy embracing aggressive internal expansion,
as well as strategic acquisitions to expand or enhance the Company's portfolio
of services, geographic presence, therapeutic area knowledge, information
technology, and client relationships.
Since June 1996, the Company has completed six acquisitions. In June
1996, the Company acquired, in separate transactions, Caspard Consultants, a
Paris-based CRO, and Sitebase Clinical Systems, Inc., a provider of remote data
entry ("RDE") technology designed to enhance the quality and timeliness of
clinical trial data. In August 1996, PAREXEL acquired Lansal Clinical
Pharmaceutics Limited, a CRO in Tel Aviv, Israel, as well as State and Federal
Associates, Inc. ("S&FA"), a Washington, D.C.-based provider of medical
marketing and related consulting services to the health care and pharmaceutical
industries. In February 1997, the Company purchased RESCON, Inc. (RESCON),
another medical marketing firm near Washington, D.C., and Sheffield Statistical
Services, Ltd. ("S-Cubed"), a data management and biostatistical consulting
business in Sheffield, U.K. All of these acquisitions involved exchanges of
PAREXEL common stock and were treated as poolings of interests for financial
reporting purposes.
S&FA and RESCON not only represent the Company's largest acquisitions
during fiscal 1997, but they also mark an important strategic move for PAREXEL.
That is, the Company has extended its strategic vision beyond product regulatory
approval to the rapid market penetration of clients' products. It is
management's belief that there
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are significant efficiencies to be gained by tightening the integration between
the R&D functions and the marketing and sales functions within client
organizations. Drawing upon PAREXEL's core competencies in clinical research,
the Company is well-positioned to capitalize on peri-approval outsourcing
opportunities within the pharmaceutical and biotechnology industries as clients
look for ways to expedite the commercial launch of their products.
In order to best serve clients, capitalize on market opportunities, and
leverage the Company's knowledge base and synergistic services, PAREXEL has
internally organized its operations into three interactive business units,
namely: Drug Development (which comprises approximately 70% of the Company's net
revenue), Medical Marketing Services, and Consulting Services.
In 1997, PAREXEL also entered into a clinical pharmacology research
collaboration with Georgetown University Medical Center ("Georgetown"), one of
the leading academic medical centers in the United States. This alliance enables
the Company to access Georgetown's scientific thought leadership, and offer
clients Phase I services in the United States, in addition to the Company's
facilities in Berlin, employing an alternative and more flexible business model.
This collaboration also signifies stronger ties with clinical investigator
sites; in this case, an academic medical center. It is the Company's belief that
the Company can have a positive impact on expediting clinical research at the
site level. In conjunction with the Company's acquisition of Sheffield
Statistical Services Limited in 1997, the Company also acquired a small European
site management organization named ClinNet(R).
INDUSTRY OVERVIEW
The CRO industry provides independent product development and related
services on an outsourced basis to the pharmaceutical, biotechnology, and
medical device industries. Although outsourcing by client companies is occurring
throughout the product life cycles of pharmaceutical and biological products,
CROs today still derive the majority of their revenue from the research and
development expenditures of pharmaceutical and biotechnology companies. The CRO
industry has evolved from providing limited clinical services in the 1970s to an
industry which currently offers a full range of services that encompass the
research and development process, including discovery, pre-clinical evaluations,
study design, clinical trial management, data collection and management,
biostatistical analysis, product registrations, and other services. Certain CROs
also offer various peri- and post-approval outsourcing services in support of
the manufacturing, marketing and sale of pharmaceutics and biologics. CROs are
required to conduct services in accordance with strict regulations which govern
clinical trials and the drug approval process.
The CRO industry is fragmented, with participants ranging from several
hundred small, limited-service providers to several large full-service CROs with
global operations. Although there are few barriers to entry for small,
limited-service providers, the Company believes there are significant barriers
to becoming a full-service CRO with global capabilities. Some of these barriers
include the development of broad therapeutic area knowledge and expertise in
other technical areas, the infrastructure and experience necessary to serve the
global demands of clients, the ability to simultaneously manage complex clinical
trials in numerous countries, the expertise to prepare regulatory submissions in
multiple countries, the development and maintenance of complex information
technology systems required to integrate these capabilities, the establishment
of solid working relationships with repeat clients, a strong history of
financial performance, and capital funding to finance growth. In recent years,
the CRO industry has experienced consolidation due, in part, to the acquisition
of smaller firms by larger full-service CROs.
The CRO industry derives substantially all of its revenue from the
pharmaceutical and biotechnology industries. The global pharmaceutical and
biotechnology industries spent an estimated $35 billion in 1996 on research and
development, with approximately 45% spent on clinical development. Of this
amount, approximately $2.5 to $3.0 billion is estimated to have been outsourced
to CROs. The Company believes that there are a number of positive macro trends
driving the CRO industry's growth.
- - Drug Development Pressures. The Company believes that research and
development expenditures have increased as a result of the constant
pressure to develop product pipelines, and to respond to the demand for
products for an aging population and for the treatment of chronic
disorders and life-threatening conditions in such categories as
infectious disease, central nervous system, cardiology and oncology.
The development of therapies for chronic disorders, such as HIV/AIDS,
Alzheimer's, cancer, diabetes and arthritis, requires complex
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clinical trials to demonstrate the therapy's safety and effectiveness,
and to determine if the drug causes any long-term side effects.
- - Globalization of Clinical Development and Regulatory Strategy.
Pharmaceutical and biotechnology companies increasingly are attempting
to maximize profits from a given drug by pursuing regulatory approvals
in multiple countries in parallel rather than sequentially, as was the
practice historically. The Company believes that the globalization of
clinical research and development activities has increased the demand
for CRO services. A pharmaceutical or biotechnology company seeking
approvals in a country in which it lacks experience or internal
resources will frequently turn to a CRO for assistance in interacting
with regulators or in organizing and conducting clinical trials. In
addition, a company may turn to a CRO in the belief that regulatory
authorities who are not familiar with the company may have more
confidence in the results from tests independently conducted by a CRO
known to those authorities. An important event recently occurred in
Japan which should benefit the CRO industry. Effective April 1, 1997,
Japan officially adopted Good Clinical Practices ("GCP") and
legitimized the use of CROs in conducting clinical research in
accordance with Western standards. This should result in demand for
CROs services on behalf of local pharmaceutical companies in Japan, as
well as Western companies interested in performing clinical studies in
Japan.
- - Increasingly Complex and Stringent Regulation; Need for Technological
Capabilities. Increasingly complex and stringent regulatory
requirements throughout the world have increased the volume of data
required for regulatory filings and escalated the demands on data
collection and analysis during the drug development process. In recent
years, the FDA and corresponding regulatory agencies of Canada, Japan
and Western Europe have made progress in attempting to harmonize
standards for preclinical and clinical studies and the format and
content of applications for new drug approvals. Further, the FDA
encourages the use of computer-assisted filings in an effort to
expedite the approval process. As regulatory requirements have become
more complex, the pharmaceutical and biotechnology industries are
increasingly outsourcing to CROs to take advantage of their data
management expertise, technological capabilities and global presence.
- - Competitive Pressures to Contain Costs and Accelerate Time-to-Market.
Drug companies have been focusing on gaining market share and more
efficient ways of conducting business because of pressures stemming
from patent expirations, market acceptance of generic drugs, and
efforts of regulatory bodies and managed care to control drug prices.
The Company believes that the pharmaceutical industry is responding by
centralizing the research and development process and outsourcing to
variable cost CROs, thereby reducing the fixed costs associated with
internal drug development. The CRO industry, by specializing in
clinical trials management, is often able to perform the needed
services with a higher level of expertise or specialization, more
quickly and at a lower cost than the client could perform the services
internally. The Company believes that some large pharmaceutical
companies, rather than utilizing many CRO service providers, are
selecting a limited number of full-service, global CROs to serve as
their primary CROs, a phenomenon referred to as short-listing.
- - Consolidation in the Pharmaceutical Industry. The pharmaceutical
industry is consolidating as pharmaceutical companies seek to obtain
cost reduction synergies through business combinations. Consolidations
include some of the largest multinational pharmaceutical companies in
the world, such as Glaxo-Wellcome, American Home Products-American
Cyanamid, Hoechst-Marion Merrill Dow, Upjohn-Pharmacia, Roche-Syntex
and Sandoz-Ciba Geigy. Once consolidated, many pharmaceutical companies
aggressively manage costs by reducing headcount and outsourcing to
variable-cost CROs in an effort to reduce the fixed costs associated
with internal drug development. The Company believes that full-service
global CROs will benefit from this trend.
- - Growth of Biotechnology and Genomics Industries.. The U.S.
biotechnology industry has grown rapidly over the last ten years, and
in recent years the genomics industry has emerged with strong growth
potential. These companies are introducing significant numbers of new
drug candidates which will require regulatory approval. Oftentimes,
they do not have the necessary experience or resources to conduct
clinical trials, registrations, and product launches. Accordingly, many
of these companies have chosen to outsource to CROs rather than expend
significant time and resources to develop the necessary internal
capabilities. Moreover, the biotechnology industry is rapidly expanding
into and within Europe, providing significant growth opportunities for
CROs with a global presence.
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PAREXEL'S STRATEGY
PAREXEL's intention is to maintain and enhance its position as a
leading CRO by providing a full range of integrated clinical research and
medical marketing services on a global basis across key therapeutic areas. With
an ongoing commitment to providing excellent client service and advancing safe
and effective drug therapies, the Company draws on its specialized knowledge and
expertise to aid clients in expediting drug development time, regulatory
approval and the market introduction of new products. In so doing, PAREXEL helps
clients achieve an important objective, which is maximizing product revenues and
profits over limited patent lives.
Central to PAREXEL's success has been the Company's focused strategy on
building its platform of knowledge in the pursuit of outstanding client service.
This includes a focus on its core clinical research business which has enjoyed
significant growth; a focus on continuous process improvement, efficiency gains
and leveraging internal expertise, resources and infrastructure; a focus on
managing the Company's strong internal growth while augmenting the Company's
knowledge base through strategic acquisitions; a focus on deeply and broadly
penetrating key client accounts by offering a full spectrum of clinical
development and medical marketing services; and always, a focus on outstanding
quality and superior client service.
The Company's service philosophy involves a flexible approach which
allows its clients to use the Company's services on an individual or bundled
basis. The Company believes its expertise in conducting scientifically demanding
trials and its ability to coordinate complicated global trials are significant
competitive strengths. The Company continues to devote significant resources to
developing innovative methodologies and sophisticated information systems
designed to allow the Company to more effectively manage its business operations
and deliver services to its clients. The Company has executed a focused growth
strategy embracing aggressive internal expansion and strategic acquisitions to
expand or enhance the Company's portfolio of services, geographic presence,
therapeutic area knowledge, information technology, and client relationships.
PAREXEL has extended its strategic vision beyond product regulatory
approval, to the rapid market penetration of clients' products. It is
management's belief that there are significant efficiencies to be gained by
tightening the integration between the R&D functions and the marketing and sales
functions within client organizations, which will positively impact
time-to-market. Given PAREXEL's core competencies in clinical research, the
Company is well-positioned to capitalize on peri-approval outsourcing
opportunities within the pharmaceutical and biotechnology industries. PAREXEL
completed two acquisitions in the medical marketing area during fiscal 1997:
S&FA and RESCON. These companies focus on pricing, payment and other market
access issues by interfacing with the key players in the health care delivery
system. They have brought expertise in health economics, outcomes research,
market analysis, reimbursement, patient registrars, hotlines and other patient
assistance programs, training and communication programs, and health policy
advocacy.
Serve the Global Model of New Drug Development
The Company believes that its ability to conduct clinical trials and
other services worldwide enhances its ability to serve the increasingly global
model of drug development. The Company provides clinical research and
development services to major North American, European and Japanese
pharmaceutical companies. The Company has expanded geographically primarily
through internal growth, supplemented by strategic acquisitions, with a goal of
serving all major client markets worldwide and positioning the Company to serve
developing markets. Since January 1, 1994, the Company has established a
presence in Kobe and Tokyo, Japan; Milan, Italy; Raleigh-Durham, NC; Sydney,
Australia; Madrid, Spain; Tel Aviv, Israel; Washington, D.C.; Chicago, IL;
Sheffield, U.K.; and Stockholm, Sweden. PAREXEL is conducting a number of
multinational clinical studies designed to pursue concurrent regulatory
approvals in multiple countries. The Company believes that the expertise
developed by conducting multi-jurisdictional clinical trials is a competitive
advantage as pharmaceutical companies increasingly pursue regulatory approvals
in multiple jurisdictions in parallel.
The Company believes that the efficient delivery of high-quality
clinical services requires adherence to standardized procedures on a worldwide
basis. The Company has devoted considerable resources to developing internal
standard operating procedures, including many internal checks and balances.
These procedures, together with the Company's information technology, enable the
Company to reduce the time involved in preparing
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regulatory submissions by concurrently compiling and analyzing large volumes of
data from multinational trials and preparing regulatory submissions for filings
on a global basis.
Address All Aspects of Clinical Research and Product Launch
The Company offers a full range of services that encompass the clinical
research process, and will continue to build its medical marketing services
supporting the commercial launch phase. The Company believes that its knowledge
and experience in all stages of clinical research, as well as peri-and
post-approval services surrounding product launch, enhance its marketability and
credibility with clients. The Company's full range of services and global
experience complement the R&D and marketing and sales functions of
pharmaceutical and biotechnology companies. In order to meet the needs of
specific clients, PAREXEL offers its services on either an individual or a
bundled basis. This approach allows the Company to establish a relationship with
a new client with the need for a particular service which may in turn lead to
larger, more comprehensive projects. This flexibility allows PAREXEL to deliver
its services by operating autonomously or by working in close collaboration with
its clients. In some cases, the Company has taken advantage of the flexibility
of its information technology systems to gain direct access to client data on
client systems. In addition, the Company provides regulatory periodicals,
training materials and seminars and other complementary information products and
services designed to meet its clients' demands for increased productivity in
clinical development.
Conduct Scientifically Demanding Trials
The Company provides its services in connection with scientifically and
clinically demanding trials in a wide range of therapeutic areas, such as trials
involving the testing of drugs developed by biotechnology companies and drugs
addressing complex diseases such as HIV/AIDS, cancer and Alzheimer's. The
Company's leadership in HIV/AIDS-related therapeutic areas is evidenced by the
selection of PAREXEL as the CRO for the Intercompany Collaborative for AIDS Drug
Development, a consortium including 18 global leaders in AIDS research. Other
therapeutic categories in which the Company has expertise include central
nervous system ("CNS"), neurology, oncology, gastroenterology, endocrinology,
cardiology, hematology, immunology, rheumatology and the study of pulmonary,
reproductive and infectious diseases. The Company believes that as trials
involve increasingly complex therapeutic areas, CROs with a broad range of
experience have a competitive advantage over other companies with more limited
capabilities.
Continue Investment in Information Technology
The Company believes that superior information technology is essential
to enable a CRO to provide project services concurrently in multiple countries,
expand its geographic operations to meet the global needs of the pharmaceutical
and biotechnology industries and provide innovative services designed to
expedite the clinical trials process. The Company has an extensive and effective
global information technology network and believes that its information
technology provides it with a significant competitive advantage. The Company's
information technology supports its global organizational structure by enabling
all offices to exchange information with each other so that several offices
worldwide can work simultaneously on a project. The global information
technology network also allows the Company to track the progress of ongoing
client projects and predict more accurately and quickly its future personnel
needs to meet client contract commitments. In addition, the Company's open and
flexible information technology system can be adapted to the multiple needs of
different clients and regulatory systems. For example, the system enables the
Company to reduce the time involved in preparing regulatory submissions by
concurrently compiling and analyzing large volumes of data from multinational
trials and preparing regulatory submissions for filings on a global basis. This
system also enables the Company to respond quickly to client inquires on the
progress of projects and, in some cases, to gain direct access to client data on
client systems.
SERVICES
The Company provides a full continuum of outsourced services to the
pharmaceutical and biotechnology industries ranging from first-in-human clinical
studies through a product's launch into the commercial marketplace. It is
PAREXEL's vision to orchestrate all critical activities and seamlessly manage
the clinical development process, as project managers, through the marketing
phase of new products, as product managers.
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Over the past fifteen years, PAREXEL has developed significant
expertise in disciplines which support clients' efforts to accelerate the
development and market introduction of their products. Specifically, PAREXEL
offers such services as: clinical trials management, data management,
biostatistical analysis, medical marketing, clinical pharmacology, regulatory
and medical consulting, performance improvement, industry training and
publishing, and other drug development consulting services. The Company's
integrated services, therapeutic area depth, and sophisticated information
technology, along with its experience in global drug development and product
launch services, represent key competitive strengths.
In order to best serve clients, capitalize on market opportunities, and
leverage the Company's knowledge base and synergistic services, PAREXEL has
internally organized its operations into three interactive business units,
namely: Drug Development (which comprise approximately 70% of the Company's
revenues), Medical Marketing Services, and Consulting Services.
DRUG DEVELOPMENT
Clinical Trials Management, Biostatistical and Data Management and
related medical services comprise the Company's Drug Development business unit,
which represents approximately 70% of the Company's revenue base.
Clinical Trials Management Services
PAREXEL offers complete services for the design, initiation and
management of clinical trial programs, a critical element in obtaining
regulatory approval for drugs. The Company has performed services in connection
with trials in most therapeutic areas, including, but not limited to,
cardiovascular, central nervous system, infectious disease, AIDS/HIV, neurology,
oncology, gastroenterology, endocrinology, hematology, immunology, rheumatology
and the study of pulmonary, and reproductive diseases. PAREXEL's
multi-disciplinary clinical trials group examines a product's existing
preclinical and clinical data to design clinical trials to provide evidence of
the product's safety and efficacy.
PAREXEL can manage every aspect of clinical trials, including study and
protocol design, placement, initiation, monitoring, report preparation and
strategy development. See "Government Regulation -- New Drug Development-An
Overview." Most of the Company's clinical trials management projects involve
Phase II or III clinical trials, which are generally larger and more complex
than Phase I trials.
Clinical trials are monitored for and with strict adherence to good
clinical practices ("GCP"). The design of efficient Case Report Forms ("CRF"),
detailed operations manuals and site visits by PAREXEL's clinical research
associates ensure that clinical investigators and their staffs follow the
established protocols of the studies. The Company has adopted standard operating
procedures which are intended to satisfy regulatory requirements and serve as a
tool for controlling and enhancing the quality of PAREXEL's worldwide clinical
services.
Clinical trials represent one of the most expensive and time-consuming
parts of the overall drug development process. The information generated during
these trials is critical for gaining marketing approval from the FDA or other
regulatory agencies. PAREXEL's clinical trials management group assists clients
with one or more of the following steps:
- Study Protocol Design. The protocol defines the medical issues
the study seeks to examine and the statistical tests that will
be conducted. Accordingly, the protocol defines the frequency
and type of laboratory and clinical measures that are to be
tracked and analyzed. The protocol also defines the number of
patients required to produce a statistically valid result, the
period of time over which they must be tracked and the
frequency and dosage of drug administration. The study's
success depends on the protocol's ability to predict correctly
the requirements of the regulatory authority.
- Case Report Forms Design. Once the study protocol has been
finalized, case report forms ("CRFs") must be developed. The
CRF may change at different stages of a trial. The CRFs for
one patient in a given study may consist of 100 or more pages.
- Site and Investigator Recruitment. The drug is administered to
patients by physicians, referred to as investigators, at
hospitals, clinics or other locations, referred to as sites.
Potential investigators may be
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identified by the drug sponsor or the CRO. The CRO generally
solicits the investigators' participation in the study. The
trial's success depends on the successful identification and
recruitment of experienced investigators with an adequate base
of patients who satisfy the requirements of the study
protocol. The Company has access to several thousand
investigators who have conducted clinical trials for the
Company. The Company will also provide additional services at
the clinical investigator site to assist physician and
expedite the clinical research process.
- Patient Enrollment. The investigators find and enroll patients
suitable for the study. The speed with which trials can be
completed is significantly affected by the rate at which
patients are enrolled. Prospective patients are required to
review information about the drug and its possible side
effects, and sign an informed consent form to record their
knowledge and acceptance of potential side effects. Patients
also undergo a medical examination to determine whether they
meet the requirements of the study protocol. Patients then
receive the drug and are examined by the investigator as
specified by the study protocol.
- Study Monitoring and Data Collection. As patients are examined
and tests are conducted in accordance with the study protocol,
data are recorded on CRFs and laboratory reports. The data are
collected from study sites by specially trained persons known
as monitors. Monitors visit sites regularly to ensure that the
CRFs are completed correctly and that all data specified in
the protocol are collected. The monitors take completed CRFs
to the study coordinating site, where the CRFs are reviewed
for consistency and accuracy before their data is entered into
an electronic database. The Company believes remote date entry
("RDE") technology will significantly enhance both the quality
and timeliness of clinical data collection with significant
efficiency savings. Hence, in June 1996, the Company acquired
Sitebase Clinical Systems, Inc., ("Sitebase") a provider of
RDE software to the pharmaceutical industry. The Company's
study monitoring and data collection services comply with the
FDA's adverse events reporting guidelines.
- Clinical Data Management and Biostatistical Services.
(See Below)
- Report Writing. The findings of statistical analysis of data
collected during the trial together with other clinical data
are included in a final report generated for inclusion in a
regulatory document.
- Medical Services. Throughout the course of a development
program, PAREXEL's physicians provide a wide range of medical
research and consulting services to improve the speed and
quality of clinical research, including medical supervision of
clinical trials, compliance with medical standards and safety
regulations, medical writing, medical imaging, strategy
development, and portfolio management.
Clinical Data Management and Biostatistical Services
PAREXEL's data management professionals assist in the design of CRFs,
as well as training manuals for investigators, to ensure that data are collected
in an organized and consistent format. Databases are designed according to the
analytical specifications of the project and the particular needs of the client.
Prior to data entry, PAREXEL personnel screen the data to detect errors,
omissions and other deficiencies in completed CRFs. The use of Sitebase, RDE
technology, to gather and report clinical monitoring information expedites data
exchange while minimizing data collection errors as a result of real time data
integrity verification. The Company provides clients with data abstraction, data
review and coding, data entry, database verification and editing and problem
data resolution.
The Company has extensive experience throughout the world in the
creation of scientific databases for all phases of the drug development process,
including the creation of customized databases to meet client-specific formats,
integrated databases to support New Drug Application submissions and databases
in strict accordance with FDA and European specifications. For example, the
Company completed, in support of a New Drug Application filing, an expanded
access program with over 2,000 investigators enrolling over 11,000 patients at
sites located in 26 countries, including 17 in Europe, five in South America,
two in Central America, the United States and Australia. Over 300,000 pages of
CRF data were collected from these sites and merged into one integrated
database.
PAREXEL's biostatistics professionals assist clients with all phases of
drug development, including biostatistical consulting, database design, data
analysis and statistical reporting. These professionals develop and review
protocols, design appropriate analysis plans and design report formats to
address the objectives of the study protocol
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as well as the client's individual objectives. Working with the programming
staff, biostatisticians perform appropriate analyses and produce tables, graphs,
listings and other applicable displays of results according to the analysis
plan. Frequently, biostatisticians represent clients during panel hearings at
the FDA.
MEDICAL MARKETING SERVICES
With the acquisitions of S&FA and RESCON in fiscal 1997, PAREXEL has
extended the endpoint of its service offerings beyond product regulatory
approval to the commercial launch and market acceptance of clients' products.
Various pressures on the pharmaceutical industry have resulted in a greater
focus on quickly moving more compounds from clinical development into the
marketplace in order to maximize revenues and profits over limited patent lives.
The move into medical marketing services in response to client demand has been a
natural progression for PAREXEL, and one that draws upon the Company's core
competencies in clinical research. It is PAREXEL's vision to orchestrate all
critical activities and seamlessly manage the clinical development process, as
project managers, through the marketing phase of new products, as product
managers. An emphasis on tightening the integration between the R&D and
marketing functions should have a positive impact on time-to-market and market
penetration.
The Company's experience indicates that clients need assistance in
addressing the technical aspects of launching their products, especially
managing the simultaneous launch of numerous products. PAREXEL assists clients
in: developing launch strategies; defining product attributes; product
positioning and promotion; interpreting clinical results; pricing and
reimbursement issues; justifying the cost-effectiveness and outcomes of proposed
treatments; post-approval studies; training physicians, sales forces, patients,
payors; managing patient registries, hotlines and other assistance programs; and
advocating appropriate public policy.
CONSULTING SERVICES
The Company offers a number of consulting, or advisory, services in
support of the product development and product marketing processes. This group
brings together experts from relevant disciplines focused on shaping meaningful
solutions and helping clients make the best business decisions with respect to
their product development and marketing strategies. This group also serves as a
valuable resource for the Company's internal operations, as technical experts
leverage their knowledge and experience to benefit Drug Development and Medical
Marketing Services.
PAREXEL's Consulting Services which are synergistically related,
included Regulatory Affairs, Clincial Pharmacology, Information Technology
Consulting, Information Products, and Performance Improvement.
Regulatory Affairs
PAREXEL provides comprehensive regulatory product registration services
for pharmaceutical and biotechnology products in major jurisdictions in Europe
and North America, including regulatory strategy formulation, document
preparation and liaison with the FDA and other regulatory agencies. In addition,
the Company provides the services of qualified experts to assist with good
manufacturing practices ("GMP") compliance in existing manufacturing plants and
to assure that new facilities are built to conform to GMP. PAREXEL's staff
provides on-site GMP training sessions and conducts internal and external
quality control and quality assurance audits.
PAREXEL works closely with clients to devise regulatory strategies and
comprehensive product development programs. The Company's regulatory affairs
experts review existing published literature, assess the scientific background
of a product, assess the competitive and regulatory environment, identify
deficiencies and define the steps necessary to obtain registration in the most
expeditious manner. Through this service, the Company helps its clients
determine the feasibility of developing a particular product or product line.
Clinical Pharmacology
PAREXEL's clinical pharmacology services primarily include Phase I
investigations and trial facilities, both for volunteers and patients. The
Company's Clinical Pharmacology Unit in Berlin is one of the world's leading
units
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for combined kinetic and dynamic studies. It provides state-of-the-art in- and
out-patient facilities, and is staffed with a team of clinical pharmacology
experts with extensive experience in both pharmakinetics and pharmadynamics.
During fiscal 1997, PAREXEL also entered into a clinical pharmacology research
collaboration with Georgetown University Medical Center, thereby creating the
Georgetown/PAREXEL Clinical Pharmacology Research Unit ("CPRU"). This
relationship provides PAREXEL exclusive access to the CPRU for purposes of
conducting clinical pharmacology research employing a more flexible,
variable-cost business model.
Information Technology Consulting
Information technology is integral to the clinical research process.
PAREXEL has technical experts which consult externally with clients, as well as
internally with Drug Development, on ways to best utilize technology to expedite
the development process. The Company has developed expertise is such areas as:
Sitebase (RDE technology), interactive voice recognition, optical imaging,
medical imaging, clinical information systems, and Computer Assisted New Drug
Application (CANDA) technologies, amongst others.
Information Products Division
The Company's Information Products Division ("IPD") offers a wide range
of specialized clinical consulting, training, and publication services to the
health care industry. PAREXEL/Barnett is a leader in providing conferences,
educational materials, and management consulting services tot the clinical
research community, with extensive experience in organizational structure,
curriculum design, and human resource management. The publications group
produces several publications covering regulatory issues, including the monthly
U.S. Regulatory Reporter, and books such as International Pharmaceutical Product
Registration; Drug Formularies and the Pharmaceutical Industry; A Practical
Guide to the EMEA; New Drug Development: A Regulatory Overview; and Biologies
Development: A Regulatory Overview. Other publications include the Worldwide
Pharmaceutical Regulation Series and PAREXEL's Pharmaceutical R&D Statistical
Source Book, published annually.
Performance Improvement
PAREXEL/Barnett is also a leader in management consulting in the
clinical research area, offering a wide range of solutions that help
pharmaceutical and biotechnology companies improve their own in-house clinical
performance. These services include performance benchmarking, process
improvement, clinical research capacity analysis, and operational support
services.
INFORMATION SYSTEMS
The Company is committed to investing in information technology
designed to help the Company provide high quality services in a cost effective
manner and to manage its internal resources. The Company believes it is one of a
few CROs that has an extensive and effective global information technology
network. The Company has built on its network by developing a number of
proprietary information systems that address critical aspects of its business,
such as project proposals/budget generations, time information management,
revenue and resource forecasting, clinical data entry and management, and
project management.
In June 1996, the Company augmented its information technology
capabilities with the acquisition of Sitebase Clinical Systems, Inc., a provider
of RDE technology which involves entry of data onto electronic case report forms
at the investigational site. RDE technology has important implications for CROs,
including enhancing the accuracy and timeliness of clinical data, thereby
shortening customers' time-to-market. The Company has also developed expertise
in each area as interactive voice recognition, optical imaging, and Computer
Assisted New Drug Applications (CANDA) technologies.
The Company's information systems group has hundreds of employees
responsible for technology procurement, applications development and management
of the Company's worldwide computer network. The wide area network links
numerous local area networks, interconnecting over 2,400 computers worldwide.
The Company's information systems are designed to work in support of and
reinforce the Company's standard operating procedures. The Company's information
technology system is open and flexible, allowing it to be adapted to the
multiple needs of
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different clients and regulatory systems. This system also enables the Company
to respond quickly to client inquiries on the progress of projects and, in some
cases, to gain direct access to client data on client systems.
SALES AND MARKETING
PAREXEL's marketing strategy is maintain excellent service-oriented
relationship with its large and loyal client base, while expanding its base
through strong global development initiatives. The Company's client relations
professionals, senior executives and project team leaders all share
responsibility for the maintenance of key client relationships and business
development activities. The Company believes that its emphasis on developing
close relationships with its clients leaves it well positioned to benefit from
the trend among pharmaceutical companies to concentrate their outsourcing among
fewer CROs. The Company's core marketing activities are complemented by the
industry conferences and publications offered by the Company's IPD. Although the
IPD activities are conducted as independent business activities, the Company
believes that the IPD offerings enhance the Company's market position in the
drug development community.
The Company's marketing activities are coordinated by PAREXEL's client
service executives in each of the Company's U.S. locations as well as the
Company's locations in Australia, France, Germany, Israel, Italy, Japan, Spain,
Sweden, and the United Kingdom. Most of the Company's business development
personnel have technical or scientific backgrounds and many are physicians,
pharmacologists, statisticians and regulatory affairs professionals. The Company
coordinates its worldwide marketing efforts through a computerized system that
is integrated into each of the Company's locations.
CLIENTS
During fiscal 1997, the Company provided services to most of the top 20
pharmaceutical and top 10 biotechnology companies, as ranked by estimated 1995
worldwide R&D spending. The Company performed services for hundreds of clients
on over 2,000 projects during the year.
The Company has in the past derived, and may in the future derive, a
significant portion of its net revenue from a core group of major projects or
clients. Concentrations of business in the CRO industry are not uncommon and the
Company is likely to experience such concentration in future years. In fiscal
1997, one client accounted for 11% of net revenue; in fiscal 1996 and 1995, no
single customer accounted for more than 10% of net revenue. In fiscal 1997, 1996
and 1995, the Company's top five customers accounted for 41%, 32% and 25%,
respectively, of the Company's net revenue. The loss of business from a
significant client could materially and adversely affect the Company's net
revenue and results of operations.
BACKLOG
Backlog consists of anticipated net revenue from letter agreements or
contracts that have been signed but not yet completed. Once work under a
contract or letter agreement commences, revenue is generally recognized over the
life of the contract, which usually lasts for 12 months or more. Backlog
excludes anticipated net revenues for projects for which the Company has
commenced work but for which a definitive contract or letter agreement has not
been executed. Backlog at June 30, 1997 was approximately $200 million, as
compared to approximately $110 million at June 30, 1996.
The Company believes that its backlog as of any date is not necessarily
a meaningful predictor of future results. Clinical studies under contracts
included in backlog are subject to termination or delay. Clients terminate or
delay contracts for a variety of reasons including, among others, the failure of
products being tested to satisfy safety requirements, unexpected or undesirable
clinical results of the product, the clients' decision to forego a particular
study, insufficient patient enrollment or investigator recruitment or production
problems resulting in shortages of the drug. Most of the Company's contracts are
terminable upon 60 to 90 days' notice by the client. The Company typically is
entitled to receive certain fees for winding down a study which is terminated or
delayed and, in some cases, a termination fee.
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COMPETITION
The Company primarily competes against in-house departments of
pharmaceutical companies, full service CROs, and, to a lesser extent,
universities, teaching hospitals and other site organizations. Some of these
competitors have greater capital, technical and other resources than the
Company. CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of services, the
ability to organize and manage large-scale trials on a global basis, the ability
to manage large and complex medical databases, the ability to provide
statistical and regulatory services, the ability to recruit investigators and
patients, the ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence with
strategically located facilities, financial viability and price. PAREXEL
believes that it competes favorably in these areas.
The CRO industry is fragmented, with participants ranging from several
hundred small, limited-service providers to several large, full-service CROs
with global operations. PAREXEL believes that it is the fourth largest
full-service CRO in the world, based on annual net revenue. Other large CROs
include Quintiles Transnational Corporation, Covance Inc., IBAH, Inc.,
Pharmaceutical Product Development, Inc. and ClinTrials Research, Inc.. The
trend toward CRO industry consolidation has resulted in heightened competition
among the larger CROs for clients and acquisition candidates. In addition,
consolidation within the pharmaceutical industry as well pharmaceutical
companies outsourcing to a fewer number of preferred CROs has led to heightened
competition for CRO contracts.
INTELLECTUAL PROPERTY
The Company believes that factors such as its ability to attract and
retain highly-skilled professional and technical employees and its project
management skills and experience are significantly more important to its
business than are any intellectual property rights developed by it. PAREXEL has
developed certain computer software and related methodologies that the Company
has sought to protect through a combination of contracts, copyrights and trade
secrets; however, the Company does not consider the loss of exclusive rights to
any of this software or methodology to be material to the Company's business.
EMPLOYEES
As of June 30, 1997, the Company had approximately 2,400. Approximately
65% of the employees are located in North America and 35% are located throughout
Europe and the Asia/Pacific region. The Company believes that its relations with
its employees are good.
The success of the Company's business depends on its ability to attract
and retain a qualified professional, scientific and technical staff. The level
of competition among employers for skilled personnel, particularly those with
Ph.D., M.D. or equivalent degrees, is high. The Company believes that its
multinational presence, which allows for international transfers, is an
advantage in attracting employees. In addition, the Company believes that the
wide range of clinical trials in which it participates allows the Company to
offer a broad experience to clinical researchers. While the Company has not
experienced any significant difficulties in attracting or retaining qualified
staff to date, there can be no assurance the Company will be able to avoid such
difficulties in the future.
GOVERNMENT REGULATION
New Drug Development -- An Overview
Before a new drug may be marketed in North America or Europe, the drug
must undergo extensive testing and regulatory review in order to determine that
the drug is safe and effective. The stages of this development process are as
follows:
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- Preclinical Research (1 to 3.5 years). In vitro ("test tube")
and animal studies to establish the relative toxicity of the
drug over a wide range of doses and to detect any potential to
cause birth defects or cancer. If results warrant continuing
development of the drug, the manufacturer will file for an IND
(Investigational New Drug Application), upon which the FDA may
grant permission to begin human trials.
- Clinical Trials (3.5 to 6 years)
- Phase I (6 months to 1 year). Basic safety and pharmacology
testing in 20 to 80 human subjects, usually healthy
volunteers, includes studies to determine how the drug works,
how it is affected by other drugs, where it goes in the body,
how long it remains active, and how it is broken down and
eliminated from the body.
- Phase II (1 to 2 years). Basic efficacy (effectiveness) and
dose-range testing in 100 to 200 afflicted volunteers to help
determine the best effective dose, confirm that the drug works
as expected, and provide additional safety data.
- Phase III (2 to 3 years). Efficacy and safety studies in
hundreds or thousands of patients at many investigational
sites (hospitals and clinics) can be placebo-controlled
trials, in which the new drug is compared with a "sugar pill,"
or studies comparing the new drug with one or more drugs with
established safety and efficacy profiles in the same
therapeutic category.
- TIND (May span late Phase II, Phase III, and FDA review). When
results from Phase II or Phase III show special promise in the
treatment of a serious condition for which existing
therapeutic options are limited or of minimal value, the FDA
may allow the manufacturer to make the new drug available to a
larger number of patients through the regulated mechanism of a
TIND (Treatment Investigational New Drug). Although less
scientifically rigorous than a controlled clinical trial, a
TIND may enroll and collect a substantial amount of data from
tens of thousands of patients.
- NDA Preparation and Submission. Upon completion of Phase III
trials, the manufacturer assembles the statistically analyzed
data from all phases of development into a single large
document, the New Drug Application (NDA), which today
comprises, on average, roughly 100,000 pages.
- FDA Review & Approval (1 to 1.5 years). Careful scrutiny of
data from all phases of development (including a TIND) to
confirm that the manufacturer has complied with regulations
and that the drug is safe and effective for the specific use
(or "indication") under study.
- Post-Marketing Surveillance and Phase IV Studies. Federal
regulation requires the manufacturer to collect and
periodically report to FDA additional safety and efficacy data
on the drug for as long as the manufacturer markets the drug
(post-marketing surveillance). If the drug is marketed outside
the U.S., these reports must include data from all countries
in which the drug is sold. Additional studies (Phase IV) may
be undertaken after initial approval to find new uses for the
drug, to test new dosage formulations, or to confirm selected
non-clinical benefits, e.g., increased cost-effectiveness or
improved quality of life.
The clinical investigation of new drugs is highly regulated by
government agencies. The standard for the conduct of clinical research and
development studies comprises GCP, which stipulates procedures designed to
ensure the quality and integrity of data obtained from clinical testing and to
protect the rights and safety of clinical subjects. While GCP has not been
formally adopted by the FDA nor, with certain exceptions, by similar regulatory
authorities in other countries, some provisions of GCP have been included in
regulations adopted by the FDA. Furthermore, in practice, the FDA and many other
regulatory authorities require that study results submitted to such authorities
be based on studies conducted in accordance with GCP.
The FDA's regulatory requirements have served as the model for much of
the regulation for new drug development worldwide. As a result, similar
regulatory requirements exist in the other countries in which the Company
operates. The Company's regulatory capabilities include knowledge of the
specific regulatory requirements in various countries, and the Company has
managed simultaneous regulatory submissions in more than one country for a
number of drug sponsors. Beginning in 1991, the FDA and corresponding regulatory
agencies of Canada, Japan and Western Europe commenced discussions to develop
harmonized standards for
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preclinical and clinical studies and the format and content of applications for
new drug approvals. Data from multinational studies adhering to GCP are now
generally acceptable to the FDA, Canadian and Western European regulators.
Effective April 1, 1997, Japan officially adopted GCP and legitimized the use of
CROs in conducting clinical research.
The services provided by PAREXEL are ultimately subject to FDA
regulation in the U.S. and comparable agencies in other countries. The Company
is obligated to comply with FDA requirements governing such activities as
obtaining patient informed consents, verifying qualifications of investigators,
reporting patients' adverse reactions to drugs and maintaining thorough and
accurate records. The Company must maintain source documents for each study for
specified periods, and such documents may be reviewed by the study sponsor and
the FDA during audits. Non-compliance with GCP can result in the
disqualification of data collected during a clinical trial.
POTENTIAL LIABILITY AND INSURANCE
PAREXEL's clinical research services center on the testing of new drugs
on human volunteers pursuant to a study protocol. Clinical research involves a
risk of liability for personal injury or death to patients due, among other
reasons, to possible unforeseen adverse side effects or improper administration
of the new drug. Many of these patients are already seriously ill and are at
risk of further illness or death. The Company has not experienced any claims to
date arising out of any clinical trial managed or monitored by it.
The Company believes that the risk of liability to patients in clinical
trials is mitigated by various regulatory requirements, including the role of
institutional review boards ("IRBs") and the need to obtain each patient's
informed consent. The FDA requires each human clinical trial to be reviewed and
approved by the IRB at each study site. An IRB is an independent committee that
includes both medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trial. After the trial begins, the IRB
monitors the protocol and measures designed to protect patients, such as the
requirement to obtain informed consent.
To reduce its potential liability, PAREXEL seeks to obtain indemnity
provisions in its contracts with clients and with investigators hired by the
Company on behalf of its clients. These indemnities generally do not, however,
protect PAREXEL against certain of its own actions such as those involving
negligence. Moreover, these indemnities are contractual arrangements that are
subject to negotiation with individual clients, and the terms and scope of such
indemnities can vary from client to client and from study to study. Finally, the
financial performance of these indemnities is not secured, so that the Company
bears the risk that an indemnifying party may not have the financial ability to
fulfill its indemnification obligations. PAREXEL could be materially and
adversely affected if it were required to pay damages or incur defense costs in
connection with a claim that is outside the scope of an indemnity or where the
indemnity, although applicable, is not performed in accordance with its terms.
The Company currently maintains an errors and omissions professional
liability insurance policy. There can be no assurance that this insurance
coverage will be adequate, or that insurance coverage will continue to be
available on terms acceptable to the Company.
RISK FACTORS
In addition to the other information in this report, the following risk
factors should be considered carefully in evaluating the company and its
business. Information provided by the Company from time to time may contain
certain "forward-looking" information, as that term is defined by (i) the
Private Securities Litigation Reform Act of 1995 (the "Act") and (ii) in
releases made by the Securities and Exchange Commission (the "SEC"). These risk
factors are being provided pursuant to the provisions of the Act and with the
intention of obtaining the benefits of the "safe harbor" provisions of the Act.
LOSS OR DELAY OF LARGE CONTRACTS
Most of the Company's contracts are terminable upon 60 to 90 days'
notice by the client. Clients terminate or delay contracts for a variety of
reasons, including, among others, the failure of products being tested to
satisfy safety requirements, unexpected or undesired clinical results of the
product, the client's decision to forego a particular study, such as for
economic reasons, insufficient patient enrollment or investigator recruitment or
production problems resulting in shortages of the drug. In addition, the Company
believes that cost-containment and
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competitive pressures have caused pharmaceutical companies to apply more
stringent criteria to the decision to proceed with clinical trials and therefore
may result in a greater willingness of these companies to cancel contracts with
CROs. The loss or delay of a large contract or the loss or delay of multiple
contracts could have a material adverse effect on the financial performance of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 16-19 of the Company's Annual Report to
Stockholders included as Exhibit 13.1 of this Form 10-K.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have been subject to
variation, and will continue to be subject to variation, depending upon factors
such as the initiation, progress, or cancellation of significant projects,
exchange rate fluctuations, the mix of services offered, the opening of new
offices and other internal expansion costs, the costs associated with
integrating acquisitions and the startup costs incurred in connection with the
introduction of new products and services. In addition, during the third quarter
of fiscal 1995 and 1993, the Company's results of operations were affected by a
non-cash restructuring charge and a non-cash write-down due to the impairment of
long-lived assets, respectively. See "Risks Associated with Acquisitions."
Because a high percentage of the Company's operating costs are relatively fixed,
variations in the initiation, completion, delay or loss of contracts, or in the
progress of client projects can cause material adverse variations in quarterly
operating results. See Note entitled "Quarterly Operating Results and Common
Stock Information (Unaudited)" to the Company's Consolidated Financial
Statements on page 35 of the Company's 1997 Annual Report to Stockholders
included as Exhibit 13.1 of this Form 10-K.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
The Company's revenues are highly dependent on research and development
expenditures by the pharmaceutical and biotechnology industries. The Company's
operations could be materially and adversely affected by general economic
downturns in its clients' industries, the impact of the current trend toward
consolidation in these industries or any decrease in research and development
expenditures. Furthermore, the Company has benefited to date from the increasing
tendency of pharmaceutical companies to outsource large clinical research
projects. A reversal or slowing of this trend would have a material adverse
effect on the Company. In fiscal 1997, 1996 and 1995, the Company's top five
clients accounted for 41%, 32% and 25%, respectively, of the Company's
consolidated net revenue. In fiscal 1997, one client accounted for 11% of net
revenue; In fiscal 1996 and 1995, no single customer accounted for mote than 10%
of net revenue. The loss of business from a significant client could have a
material adverse effect on the Company. See "Business - Clients" which appears
on page 13 of this Form 10-K.
DEPENDENCE ON GOVERNMENT REGULATION
The Company's business depends on the comprehensive government
regulation of the drug development process. In the United States, the general
trend has been in the direction of continued or increased regulation, although
the FDA recently announced regulatory changes intended to streamline the
approval process for biotechnology products by applying the same standards as
are in effect for conventional drugs. In Europe, the general trend has been
toward coordination of common standards for clinical testing of new drugs,
leading to changes in the various requirements currently imposed by each
country. Japan also legislated GCP and legitimatized the use of CRO's in April
1997. Changes in regulation, including a relaxation in regulatory requirements
or the introduction of simplified drug approval procedures, as well as
anticipated regulation, could materially and adversely affect the demand for the
services offered by the Company. In addition, failure on the part of the Company
to comply with applicable regulations could result in the termination of ongoing
research or the disqualification of data, either of which could have a material
adverse effect on the Company. See "Business - Government Regulation" which
appears on page 14 of this Form 10-K.
POTENTIAL ADVERSE IMPACT OF HEALTH CARE REFORM
Numerous governments have undertaken efforts to control growing health
care costs through legislation, regulation and voluntary agreements with medical
care providers and pharmaceutical companies. In the last several years, several
comprehensive health care reform proposals were introduced in the U.S. Congress.
The intent of the proposals was, generally, to expand health care coverage for
the uninsured and reduce the growth of total health care expenditures. While
none of the proposals were adopted, health care reform may again be addressed by
the
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U.S. Congress. Implementation of government health care reform may adversely
affect research and development expenditures by pharmaceutical and biotechnology
companies, resulting in a decrease of the business opportunities available to
the Company. Management is unable to predict the likelihood of health care
reform proposals being enacted into law or the effect such law would have on the
Company. See Item "Business - Industry Overview" which appears on page 5 of this
Form 10-K.
Many European governments have also reviewed or undertaken health care
reform. For example, German health care reform legislation implemented in
January 1993 contributed to an estimated 15% decline in German pharmaceutical
industry sales in calendar 1993 and led several clients to cancel contracts with
the Company. Subsequent to these events, in the third quarter of fiscal 1993,
the Company restructured its German operations and incurred a restructuring
charge of approximately $3.3 million. In addition, in the third quarter of
fiscal 1995, the Company's results of operations were affected by a non-cash
write-down due to the impairment of long-lived assets of PAREXEL GmbH, the
Company's German subsidiary, of approximately $11.3 million. The Company cannot
predict the impact that any pending or future health care reform proposals may
have on the Company's business in Europe. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 16-19 of the
Company's Annual Report to Stockholders included as Exhibit 13.1 of this Form
10-K.
COMPETITION; CRO INDUSTRY CONSOLIDATION
The Company primarily competes against in-house departments of
pharmaceutical companies, full service CROs, and, to a lesser extent,
universities, teaching hospitals and other site organizations. Some of these
competitors have greater capital, technical and other resources than the
Company. CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of services, the
ability to organize and manage large-scale trials on a global basis, the ability
to manage large and complex medical databases, the ability to provide
statistical and regulatory services, the ability to recruit investigators and
patients, the ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence with
strategically located facilities, financial viability and price. PAREXEL
believes that it competes favorably in these areas. There can be no assurance
that the Company will be able to compete favorably in these areas. See "Business
- - Competition" which appears on page 14 of this Form 10-K.
The CRO industry is fragmented, with participants ranging from several
hundred small, limited-service providers to several large, full-service CROs
with global operations. PAREXEL believes that it is the fourth largest
full-service CRO in the world, based on annual net revenue. Other large CROs
include Quintiles Transnational Corporation, Covance Inc., IBAH, Inc.,
Pharmaceutical Product Development, Inc. and ClinTrials Research, Inc. The
trend toward CRO industry consolidation has resulted in heightened competition
among the larger CROs for clients and acquisition candidates. In addition,
consolidation within the pharmaceutical industry as well pharmaceutical
companies outsourcing to a fewer number of preferred CROs has led to heightened
competition for CRO contracts.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has made a number of acquisitions and will continue to
review future acquisition opportunities. No assurances can be given that
acquisition candidates will continue to be available on terms and conditions
acceptable to the Company. Acquisitions involve numerous risks, including, among
other things, difficulties and expenses incurred in connection with the
acquisitions and the subsequent assimilation of the operations and services or
products of the acquired companies, the diversion of management's attention from
other business concerns and the potential loss of key employees of the acquired
company. Acquisitions of foreign companies also may involve the additional risks
of assimilating differences in foreign business practices and overcoming
language barriers. In the event that the operations of an acquired business do
not live up to expectations, the Company may be required to restructure the
acquired business or write-off the value of some or all of the assets of the
acquired business. In fiscal 1993 and 1995, the Company's results of operations
were materially and adversely affected by write-offs associated with the
Company's acquired German operations. There can be no assurance that any
acquisition will be successfully integrated into the Company's operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 16-19 of the Company's 1997 Annual Report to Stockholders
included as Exhibit 13.1 of this Form 10-K.
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MANAGEMENT OF BUSINESS EXPANSION; NEED FOR IMPROVED SYSTEMS; ASSIMILATION OF
FOREIGN OPERATIONS
The Company's business and operations have recently experienced
substantial expansion over the past 15 years. The Company believes that such
expansion places a strain on operational, human and financial resources. In
order to manage such expansion, the Company must continue to improve its
operating, administrative and information systems, accurately predict its future
personnel and resource needs to meet client contract commitments, track the
progress of ongoing client projects and attract and retain qualified management,
professional, scientific and technical operating personnel. Expansion of foreign
operations also may involve the additional risks of assimilating differences in
foreign business practices, hiring and retaining qualified personnel, and
overcoming language barriers. In the event that the operation of an acquired
business does not live up to expectations, the Company may be required to
restructure the acquired business or write-off the value of some or all of the
assets of the acquired business. Failure by the Company to meet the demands of
and to manage expansion of its business and operations could have a material
adverse effect on the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 16-19 of the
Company's 1997 Annual Report to Stockholders included as Exhibit 13.1 of this
Form 10-K.
DEPENDENCE ON PERSONNEL; ABILITY TO ATTRACT AND RETAIN PERSONNEL
The Company relies on a number of key executives, including Josef H.
von Rickenbach, its President, Chief Executive Officer and Chairman, upon whom
the Company maintains key man life insurance. Although the Company has entered
into agreements containing non-competition restrictions with its senior
officers, the Company does not have employment agreements with certain of these
persons and the loss of the services of any of the Company's key executives
could have a material adverse effect on the Company.
The Company's performance also depends on its ability to attract and
retain qualified professional, scientific and technical operating staff. The
level of competition among employers for skilled personnel, particularly those
with M.D., Ph.D. or equivalent degrees, is high. There can be no assurance the
Company will be able to continue to attract and retain qualified staff. See
"Business - Employees" which appears on page 14 of this Form 10-K.
POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE
Clinical research services involve the testing of new drugs on
consenting human volunteers pursuant to a study protocol. Such testing involves
a risk of liability for personal injury or death to patients due to, among other
reasons, possible unforeseen adverse side effects or improper administration of
the new drug. Many of these patients are already seriously ill and are at risk
of further illness or death. The Company could be materially and adversely
affected if it were required to pay damages or incur defense costs in connection
with a claim that is outside the scope of an indemnity or insurance coverage, or
if the indemnity, although applicable, is not performed in accordance with its
terms or if the Company's liability exceeds the amount of applicable insurance.
In addition, there can be no assurance that such insurance will continue to be
available on terms acceptable to the Company. See "Business - Potential
Liability and Insurance" which appears on page 16 of this Form 10-K.
ADVERSE EFFECT OF EXCHANGE RATE FLUCTUATIONS
Approximately 36%, 38% and 40% of the Company's net revenue for fiscal
1997, 1996 and 1995, respectively, was derived from the Company's operations
outside of North America. Since the revenue and expenses of the Company's
foreign operations are generally denominated in local currencies, exchange rate
fluctuations between local currencies and the United States dollar will subject
the Company to currency translation risk with respect to the results of its
foreign operations. To the extent the Company is unable to shift to its clients
the effects of currency fluctuations, these fluctuations could have a material
adverse effect on the Company's results of operations. The Company does not
currently hedge against the risk of exchange rate fluctuations.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results,
changes in earnings estimates by analysts, market conditions in the industry,
prospects of health care reform, changes in government regulation and general
economic conditions. In
19
<PAGE> 20
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have been unrelated to the operating performance of
particular companies. These market fluctuations may adversely affect the market
price of the Company's Common Stock. Because the Company's Common Stock
currently trades at a relatively high price-earnings multiple, due in part to
analysts' expectations of continued earnings growth, even a relatively small
shortfall in earnings from, or a change in, analysts' expectations may cause an
immediate and substantial decline in the Company's stock price. Investors in the
Company's Common Stock must be willing to bear the risk of such fluctuations in
earnings and stock price.
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company's Restated Articles of Organization and Restated By-Laws
contain provisions that may make it more difficult for a third party to acquire,
or may discourage a third party from acquiring, the Company. These provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock. In addition, shares of the
Company's Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of any holders of Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
adversely affect the market price of the Common Stock and could have the effect
of making it more difficult for a third party to acquire, or discouraging a
third party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
ITEM 2. PROPERTIES
PAREXEL leases all but one of its facilities. The Company's principal
executive offices are located in Waltham, Massachusetts. The company also leases
space in Lowell, Massachusetts, and maintains other North American offices in
Chicago, Philadelphia, Raleigh- Durham, San Diego, and Washington, D.C.. The
Company's European subsidiaries maintain offices in Berlin, Frankfurt, London,
Sheffield, Milan, Paris, Madrid, Stockholm, and Tel Aviv. The Company's Japanese
subsidiary is located in Kobe, with a branch office in Tokyo. Its Australian
subsidiary is located in Sydney. The Company considers all of its properties to
be suitable and adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS
As previously disclosed, the Company was a defendant in a proceeding
captioned Dennis J. Tallon v. Frederic Harwood, Samuel T. Barnett, Barnett
Associates, Inc., and PAREXEL International Corporation, 92-3496. The proceeding
was filed on March 3, 1992 in the Court of Common Pleas, Delaware Court,
Pennsylvania. On May 8, 1997, the trial court granted the Company's motion for
summary judgment and dismissed the Plaintiff's action in its entirety.
Subsequently, the Plaintiff filed an appeal of the Trial Court's order. In
August 1997, this matter was settled and the Company was released from liability
for all alleged claims of the Plaintiff. Pursuant to the Parties' settlement,
the Plaintiff's appeal will be withdrawn and all proceedings in this matter will
be terminated. The resolution of this matter did not have a material adverse
affect on the financial position, results of operations or business of the
Company.
No material legal proceedings are pending to which the Company, its
subsidiaries, or any of their properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1997.
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference from page 35, "Quarterly
Operating Results and Common Stock Information (Unaudited)" of the Company's
1997 Annual Report to Stockholders included as Exhibit 13.1.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from page 35, "Selected
Financial Data," of the Company's 1997 Annual Report to Stockholders included as
Exhibit 13.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is incorporated by reference from pages 16-19,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the Company's 1997 Annual Report to Stockholders included as
Exhibit 13.1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information are
incorporated by reference from pages 20-34 of the Company's 1997 Annual Report
to Stockholders included as Exhibit 13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item may be found under the captions
"Elections of Directors" and "Executive Officers" in the Proxy Statement for the
Company's 1997 Annual Meeting of Stockholders. Such information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item may be found under the captions
"Directors' Compensation" and "Executive Compensation" in the Proxy Statement
for the Company's 1997 Annual Meeting of Stockholders. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement for the Company's 1997 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement for the
Company's 1997 Annual Meeting of Stockholders. Such information is incorporated
herein by reference.
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report.
(1) Financial Statements. The following financial statements and
supplementary data included in the 1997 Annual Report to
Stockholders, filed as Exhibit 13.1 to this report, are
incorporated by reference into Item 8 of this report.
<TABLE>
<CAPTION>
ANNUAL REPORT
FINANCIAL STATEMENTS FORM 10-K PAGE TO
STOCKHOLDERS PAGE
<S> <C> <C>
Report of Independent Accountants 21 34
Consolidated Balance Sheets at June 30, 1997 21 21
and 1996
Consolidated Statements of Operations for each 21 20
of the three years ended June 30, 1997
Consolidated Statements of Stockholders' 21 22
Equity for each of the three years ended June
30, 1997
Consolidated Statements of Cash Flows for each 21 23
of the three years ended June 30, 1997
Notes to Consolidated Financial Statements 21 24-33
</TABLE>
(2) Financial Statement Schedules:
For the three years ended June 30, 1997:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements
or the Notes thereto.
(3) Exhibits
22
<PAGE> 23
Exhibit Description
No.
3.1 -- Amended and Restated Articles of Organization of the Company,
as amended (filed as Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended December 31, 1996
and incorporated herein by this reference).
3.2 -- Amended and Restated By-laws of the Company (filed as Exhibit
3.2 to the Registrant's Registration Statement on Form S-1
(File No. 333-1188) and incorporated herein by this
reference).
4.1 -- Specimen certificate representing the Common Stock of the
Company (filed as Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (File No. 33- 97406) and incorporated
herein by this reference).
4.2 -- Purchase Agreement dated as of August 22, 1996 between the
Company and State and Federal Associates, Inc., S&FA of
Alexandria Partnership, Martin J. Miller, Howard Tag, Peter
Malamis and Laurie Hughes (filed as Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3 (File No.
333-19751) and incorporated herein by this reference).
4.3 -- Registration Rights Agreement dated as of August 22, 1996
between the Company and S&FA of Alexandria Partnership, Martin
J. Miller, Howard Tag, Peter Malamis and Laurie Hughes (filed
as Exhibit 4.3 the Registrant's Registration Statement on Form
S-3 (File No. 333-19751) and incorporated herein by this
reference).
4.4 -- Agreement and Plan of Reorganization and Merger dated as of
February 28, 1997 among the Company, Rescon, Inc., Rescon
Acquisition Corporation, Walter Leroy Hill, as Trustee of the
Walter L. Hill Revocable Trust and Walter Leroy Hill (filed as
Exhibit 4.2 the Registrant's Registration Statement on Form
S-3 (File No. 333-27487) and incorporated herein by this
reference).
4.5 -- Registration Rights Agreement dated as of February 28, 1997
among the Company, Walter Leroy Hill, and Walter Leroy Hill as
Trustee of the Walter L. Hill Revocable Trust (filed as
Exhibit 4.3 the Registrant's Registration Statement on Form
S-3 (File No. 333-27487) and incorporated herein by this
reference).
4.6 -- Share Purchase Agreement dated as of February 28, 1997 among
the Company, Dr. Richard Kay and Janet Kay (filed as Exhibit
4.4 the Registrant's Registration Statement on Form S-3 (File
No. 333-27487) and incorporated herein by this reference).
4.7 -- Registration Rights Agreement dated as of February 28, 1997
among the Company, Dr. Richard Kay and Janet Kay (filed as
Exhibit 4.5 the Registrant's Registration Statement on Form
S-3 (File No. 333-27487) and incorporated herein by this
reference).
4.8 -- Share Purchase Agreement dated as of February 28, 1997 among
the Company, Dr. Afron Lloyd Jones and Dr. Diana Smith (filed
as Exhibit 4.6 the Registrant's Registration Statement on Form
S-3 (File No. 333-27487) and incorporated herein by this
reference).
4.9 -- Registration Right Agreement dated as of February 28, 1997
among the Company, Dr. . Afron Lloyd Jones and Dr. Diana Smith
(filed as Exhibit 4.7 the Registrant's Registration Statement
on Form S-3 (File No. 333-27487) and incorporated herein by
this reference).
23
<PAGE> 24
10.1 -- Employment Agreement dated December 30, 1996 between James M.
Karis and the Company (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended December 31, 1996 and incorporated herein by this
reference).
10.2 -- Agreement dated June 30, 1993 between Prof. Dr. med. Werner M.
Herrmann and PAREXEL GmbH Independent Pharmaceutical Research
Organization, as amended (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1997 and incorporated herein by this
reference).
10.3 -- Letter Agreement date May 12, 1997 between Prof. Dr. med.
Werner M. Herrmann and the Company (filed as Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1997 and incorporated herein by this
reference).
10.4 -- Form of Stock Option Agreement of the Company (filed as
Exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 (File No. 333-1188) and incorporated herein by this
reference).
10.5 -- 1986 Incentive Stock Option Plan of the Company (filed as
Exhibit 10.10 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
10.6 -- 1987 Stock Plan of the Company (filed as Exhibit 10.11 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.7 -- 1989 Stock Plan of the Company (filed as Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.8 -- 1995 Stock Plan of the Company (filed as Exhibit 10.13 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.9 -- 1995 Non-Employee Director Stock Option Plan of the Company
(filed as Exhibit 10.14 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and incorporated
herein by this reference).
10.10 -- 1995 Employee Stock Purchase Plan of the Company (filed as
Exhibit 10.15 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
24
<PAGE> 25
10.11 -- Corporate Plan for Retirement of the Company (filed as Exhibit
10.16 to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.12 -- Loan and Security Agreement dated as of July 31, 1992 between
the Company, Barnett International Corporation and The First
National Bank of Boston, as amended (filed as Exhibit 10.17 to
the Registrant's Registration Statement on Form S-1(File No.
333-06953) and incorporated herein by this reference).
10.13 -- Line of Credit Agreement between PAREXEL GmbH and Deutsche
Bank Berlin, dated January 23, 1995 (filed as Exhibit 10.24 to
the Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.14 -- First Amendment dated as of January 3, 1992 to the Lease dated
June 14, 1991 between 200 West Street Limited Partnership and
the Company (filed as Exhibit 10.25 to the Registrant's
Registration Statement on Form S-1 (File No. 33-97406) and
incorporated herein by this reference).
10.15 -- Second Amendment dated as of June 28, 1993 to the lease dated
June 14, 1991 between 200 West Street Limited Partnership and
the Company (filed as Exhibit 10.28 to the Registrant's
Registration Statement on Form S-1 (File No. 33-97406) and
incorporated herein by this reference).
10.16 -- Letter of employment dated July 6, 1993 between Barry R.
Philpott and the Company (filed as Exhibit 10.29 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.17 -- Credit Agreement dated December 30, 1994 between PAREXEL GmbH
and The First National Bank of Boston (filed as Exhibit 10.30
to the Registrant's Registration Statement on Form S-1(File
No. 33-97406) and incorporated herein by this reference).
10.18 -- Collateral Agreement dated December 30, 1994 between PAREXEL
GmbH and The First National Bank of Boston (filed as Exhibit
10.31 to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.19 -- Proposed Amended and Restated 1995 Stock Plan of the Company
to become effective upon the approval of the stockholders at
the 1997 Annual Meeting.
11.1 -- Statement re computation of per share earnings.
13.1 -- Specified portions of the Registrant's 1997 Annual Report to
Stockholders.
21.1 -- List of subsidiaries of the Company.
23.1 -- Consent of Price Waterhouse L.L.P.
27.1 -- Financial Data Schedule.
25
<PAGE> 26
(B) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated April 23, 1997,
reporting financial results for the three months ended March 31, 1997.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the city of Waltham,
Massachusetts, on the 26th day of September, 1997.
PAREXEL INTERNATIONAL CORPORATION
By:/s/ JOSEF H. VON RICKENBACH
----------------------------------
JOSEF H. VON RICKENBACH
President, Chief Executive Officer
and Chairman
<TABLE>
<CAPTION>
Signatures Title(s) Date
---------- -------- ----
<S> <C> <C>
/s/ JOSEF H. VON RICKENBACH President, Chief September 26, 1997
--------------------------- Executive Officer and
Josef H. von Rickenbach Chairman (principal
executive officer)
/s/ WILLIAM T. SOBO, JR. Senior Vice President, September 26, 1997
------------------------ Chief Financial Officer,
William T. Sobo, Jr. Treasurer and Clerk
(principal financial and
accounting officer)
/s/ A. DANA CALLOW, JR. Director September 26, 1997
-----------------------
A. Dana Callow, Jr.
/s/ PATRICK J. FORTUNE Director September 26, 1997
----------------------
Patrick J. Fortune
/s/ WERNER M. HERRMANN Director September 26, 1997
----------------------
Werner M. Herrmann
/s/ PETER BARTON HUTT Director September 26, 1997
---------------------
Peter Barton Hutt
/s/ JAMES A. SAALFIELD Director September 26, 1997
----------------------
James A. Saalfield
</TABLE>
27
<PAGE> 28
SCHEDULE II
PAREXEL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
Description period expenses other accounts and write-offs period
- ------------------------- ------------ ----------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Year ended June 30, 1995 $ 580,000 $ 1,021,000 -- $ (327,000) $ 1,274,000
Year ended June 30, 1996 1,274,000 515,000 -- (290,000) 1,499,000
Year ended June 30, 1997 1,499,000 1,452,000 $ 384,000(1) (624,000) 2,711,000
DEFERRED TAX ASSET
VALUATION ALLOWANCE
Year ended June 30, 1995 6,071,000 -- 1,620,000 (200,000) 7,491,000
Year ended June 30, 1996 7,491,000 -- -- (1,565,000) 5,926,000
Year ended June 30, 1997 5,926,000 -- -- (2,554,000) 3,372,000
</TABLE>
(1) Amounts acquired through business combinations.
28
<PAGE> 1
Exhibit 10.19
PAREXEL INTERNATIONAL CORPORATION
AMENDED AND RESTATED 1995 STOCK PLAN
(as amended by the Board of Directors on July 8, 1997
and
approved by the Stockholders on November ___, 1997)
INTRODUCTION: GENERAL PROVISIONS
1. PURPOSE.
A. PART I - NON-FORMULA GRANTS. Part I of this Amended and
Restated 1995 Stock Plan (the "Plan") is intended to provide incentives:
(a) to the officers and other employees of PAREXEL International
Corporation (the "Company"), and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations"), by
providing them with opportunities to purchase stock in the Company
pursuant to options granted hereunder which qualify as "incentive stock
options" ("ISOs") under Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"); (b) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Options"); (c) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with awards of stock in the Company
("Awards"); and (d) to directors, officers, employees and consultants of
the Company and Related Corporations by providing them with opportunities
to make direct purchases of stock in the Company ("Purchases").
B. PART II - FORMULA GRANTS. Part II of this Plan is designed to
operate as a formula plan and intended to promote the interests of the
Company, with an inducement to obtain and retain the services of qualified
persons who are not employees or officers of the Company to serve as
members of its Board of Directors (the "Board") by providing such
directors with an automatic, annual grant of Non-Qualified Options
pursuant to the terms and conditions of Part II of this Plan.
C. CERTAIN DEFINITIONS. Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as
"Options." Options, Awards and authorizations to make Purchases are
referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of
the Code.
<PAGE> 2
- 2 -
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board or, subject to paragraph 2D (relating to
compliance with Section 162(m) of the Code), by a committee appointed by
the Board (the "Committee"). Hereinafter, all references in this Plan to
the "Committee" shall mean the Board if no Committee has been appointed.
With respect to Stock Rights granted pursuant to Part I of the Plan and
subject to ratification of the grant or authorization of each Stock Right
pursuant to Part I of the Plan by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee shall have
the authority to (i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under paragraph 3
to receive ISOs) to whom ISOs shall be granted, and determine (from among
the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) to whom
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted; (ii) determine the time or times at which Options or Awards shall
be granted or Purchases made; (iii) determine the option price of shares
subject to each Option, which price shall not be less than the minimum
price specified in paragraph 14, and the purchase price of shares subject
to each Purchase; (iv) determine whether each Option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to paragraph 15) the
time or times when each Option shall become exercisable and the duration
of the exercise period; (vi) determine whether restrictions such as
repurchase options are to be imposed on shares subject to Options, Awards
and Purchases and the nature of such restrictions, if any, and (vii)
interpret the Plan and prescribe and rescind rules and regulations
relating to it. With respect to Non-Qualified Options granted pursuant to
Part II of the Plan, the terms of such Non-Qualified Options shall be as
set forth in paragraphs 23 through 28. If the Committee determines to
issue a Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may deem
best. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members
as its chairman, and shall hold meetings at such time and places as it may
determine. Acts by a majority of the members of the Committee, or acts
reduced to or approved in writing by a majority of the members of the
Committee (if consistent with applicable state law), shall constitute the
valid acts of the Committee. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
<PAGE> 3
- 3 -
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. In addition to the
Non-Qualified Options automatically granted to non-employee directors
pursuant to Part II of the Plan, Stock Rights may be granted pursuant to
Part I of this Plan to members of the Board. Members of the Board who
either (i) are eligible to receive grants of Stock Rights pursuant to the
Plan or (ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act upon the
granting to himself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during
which action is taken with respect to the granting to him of Stock Rights.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its discretion,
may take such action as may be necessary to ensure that Stock Rights
granted under the Plan qualify as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code and
applicable regulations promulgated thereunder ("Performance-Based
Compensation"). Such action may include, in the Board's discretion, some
or all of the following (i) if the Board determines that Stock Rights
granted under the Plan generally shall constitute Performance-Based
Compensation, the Plan shall be administered, to the extent required for
such Stock Rights to constitute Performance-Based Compensation, by a
Committee consisting solely of two or more "outside directors" (as defined
in applicable regulations promulgated under Section 162(m) of the Code),
(ii) if any Non-Qualified Options with an exercise price less than the
fair market value per share of Common Stock are granted under the Plan and
the Board determines that such Options should constitute Performance-Based
Compensation, such options shall be made exercisable only upon the
attainment of a pre-established, objective performance goal established by
the Committee, and such grant shall be submitted for, and shall be
contingent upon shareholder approval and (iii) Stock Rights granted under
the Plan may be subject to such other terms and conditions as are
necessary for compensation recognized in connection with the exercise or
disposition of such Stock Right or the disposition of Common Stock
acquired pursuant to such Stock Right, to constitute Performance-Based
Compensation.
3. ELIGIBLE OPTIONEES. ISOs may be granted only to employees of the
Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted pursuant to Part I to any
employee, officer or director (whether or not also an employee) or consultant of
the Company or any Related Corporation. Non-Qualified Options granted pursuant
to Part II may only be granted to non-employee directors of the Company. With
respect to Stock Rights granted pursuant to Part I of the Plan, the Committee
may take into consideration a recipient's individual circumstances in
determining whether to grant an ISO, a Non-Qualified Option, an Award or an
authorization to make a Purchase. Granting of any Stock Right to any individual
or entity shall neither entitle that individual or entity to, nor disqualify him
from, participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan, subject to adjustment as provided in
<PAGE> 4
- 4 -
paragraph 11 of the Plan, is the sum of (x) 2,000,000, plus (y) a number equal
to 600,000 minus the number of shares issued upon the exercise of options
granted under the 1995 Non-Employee Director Stock Option Plan of the Company
(the "Director Plan), subject to adjustment as provided in paragraph 11. If any
Stock Right granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject to such Stock
Right shall again be available for grants of Stock Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 998,000 shares of Common Stock
under the Plan. If any Option granted under the Plan shall expire or terminate
for any reason without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part or shall be repurchased by the
Company, the shares subject to such Option shall be included in the
determination of the aggregate number of shares of Common Stock deemed to have
been granted to such employee under the Plan.
The aggregate number of shares which may be issued pursuant to Part II
shall not exceed 540,000 shares, minus the number of shares issued upon the
exercise of options granted under the Director Plan, subject to adjustment in
accordance with paragraph 11 of the Plan.
5. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, (b) at the discretion
of the Committee, through delivery of shares of Common Stock owned by the
optionee free and clear of any restrictions (other than those arising under
securities laws) for at least six months having a fair market value equal as of
the date of the exercise to the cash exercise price of the Stock Right, (c) at
the discretion of the Committee and consistent with applicable law, through the
delivery of an assignment to the Company of a sufficient amount of the proceeds
from the sale of the Common Stock acquired upon exercise of the Stock Right and
an authorization to the broker or selling agent to pay that amount to the
Company, which sale shall be at the participant's direction at the time of
exercise, or (d) at the discretion of the Committee, by any combination of (a),
(b) and (c) above. If the Committee exercises its discretion to permit payment
of the exercise price of an ISO by means of the methods set forth in clauses
(b), (c) or (d) of the preceding sentence, such discretion shall be exercised in
writing at the time of the grant of the ISO in question. The holder of a Stock
Right shall not have the rights of a shareholder with respect to the shares
covered by his Stock Right until the date of issuance of a stock certificate to
him for such shares. Except as expressly provided in paragraph 11 below with
respect to changes in capitalization and stock dividends, no adjustment shall be
made for dividends or similar rights for which the record date is before the
date such stock certificate is issued. The stock certificates representing such
shares shall carry such appropriate legend, and such written instructions shall
be given to the Company's transfer agent, as may be deemed necessary or
advisable by counsel to the Company in order to comply with the requirements of
the Securities Act of 1933, as amended, (the "Act") or any state securities
laws.
<PAGE> 5
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6. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
7. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Option pursuant to an
arms-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as described in paragraph 22), the vesting or transfer of
restricted stock or securities acquired on the exercise of a Stock Right
hereunder, or the making of a distribution or other payment with respect to such
stock or securities, the Company may withhold taxes in respect of amounts that
constitute compensation includible in gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the transfer of a
Non-Qualified Option, (iii) the grant of an Award, (iv) the making of a Purchase
of Common Stock for less than its fair market value, or (v) the vesting or
transferability of restricted stock or securities acquired by exercising a Stock
Right, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock held by the grantee
for at least six months or the withholding from the shares of Common Stock
otherwise deliverable upon exercise of a Stock Right shares having an aggregate
fair market value equal to the amount of such withholding taxes.
8. GOVERNMENTAL AND SECURITIES LAW REGULATION.
A. The Company's obligation to sell and deliver shares of the
Common Stock under this Plan is subject to the approval of any governmental
authority required in connection with the authorization, issuance or sale of
such shares. The Company shall have no obligation to deliver any stock
certificate or certificates upon exercise of an Option until one of the
following conditions shall be satisfied:
(i) The shares with respect to which the Option has been exercised
are at the time of the issue of such shares effectively registered under
applicable Federal and state securities laws as now in force or hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion that such
shares are exempt from registration under Federal and state securities
laws as now in force or hereafter amended; and the Company has complied
with all applicable laws and regulations with respect thereto, including
without limitation all regulations required by any stock exchange upon
which the Company's outstanding Common Stock is then listed.
B. If in the opinion of legal counsel for the Company the issuance
or sale of any shares of Common Stock pursuant to the exercise of an
Option would not be lawful for any reason, including without limitation
the inability of the Company to obtain from any
<PAGE> 6
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governmental authority or regulatory body having jurisdiction the
authority deemed by such counsel to be necessary to such issuance or sale,
the Company shall not be obligated to issue or sell any shares of Common
Stock pursuant to the exercise of an Option to an optionee or any other
authorized person unless a registration statement that complies with the
provisions of the Act in respect of such shares of Common Stock is in
effect at the time thereof, or other appropriate action has been taken
under and pursuant to the terms and provisions of the Act, or the Company
receives evidence satisfactory to such counsel that the issuance and sale
of such shares of Common Stock, in the absence of an effective
registration statement or other appropriate action, would not constitute a
violation of the Act or any applicable state securities law. The Company
is in no event obligated to register any such shares of Common Stock, to
comply with any exemption from registration requirements or to take any
other action which may be required in order to permit, or to remedy or
remove any prohibition or limitation on, the issuance or sale of such
shares of Common Stock of any optionee or other authorized person.
C. Government regulations may impose reporting or other
obligations on the Company with respect to the Plan. For example, the
Company may be required to send tax information statements to employees
and former employees that exercise ISOs under the Plan, and the Company
may be required to file tax information returns reporting the income
received by grantees of Stock Rights in connection with the Plan.
D. If requested by the Company, an optionee shall deliver to the
Company written representations and warranties upon exercise of the Option
that are necessary to show compliance with Federal and state securities
laws, including representations and warranties to the effect that a
purchase of shares under an Option granted pursuant to this Plan is made
for investment and not with a view to their distribution (as that term is
used in the Act.)
9. COMPLIANCE WITH REGULATIONS. It is the Company's intent that the Plan
comply in all respects with Section 162(m) of the Code and Rule 16b-3 under the
Securities Exchange Act of 1934 (or any successor or amended version thereof)
and any applicable Securities and Exchange Commission interpretations thereof
("Rule 16b-3"). If any provision of this Plan is deemed not to be in compliance
with Rule 16b-3, the provision shall be null and void.
10. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
Commonwealth of Massachusetts, or the laws of any jurisdiction in which the
Company or its successors in interest may be organized. In construing this Plan,
the singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.
11. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him shall be adjusted as
hereinafter provided, unless otherwise specifically provided in the written
agreement between the optionee and the Company relating to such Option:
<PAGE> 7
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A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of outstanding Options, as well as any
Non-Qualified Options to be granted under Part II, shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Committee or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options granted pursuant to Part I of the Plan, either (i)
make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such
Options the consideration payable with respect to the outstanding shares
of Common Stock in connection with the Acquisition; or (ii) upon written
notice to the optionees, provide that all Options granted pursuant to Part
I must be exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which period the
Options shall terminate; or (iii) terminate all Options granted pursuant
to Part I in exchange for a cash payment equal to the excess of the fair
market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof. In the event of a
reorganization, recapitalization, merger, consolidation, or any other
change in the corporate structure or shares of the Company, to the extent
permitted by Rule 16b-3, adjustments in the number and kind of shares
authorized by Part II and in the number and kind of shares covered by, and
in the option price of outstanding Options under Part II necessary to
maintain the proportionate interest of the optionee and preserve, without
exceeding, the value of such Option shall be made.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option granted pursuant to Part I shall be entitled to
receive for the purchase price paid upon such exercise the securities he
would have received if he had exercised his Option prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain from making such
adjustments.
<PAGE> 8
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E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option granted pursuant to
this Plan will terminate immediately prior to the consummation of such
proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described
in subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted shall also be
appropriately adjusted to reflect the events described in such
subparagraphs.
12. TERM AND AMENDMENT OF PLAN. This Plan was initially adopted by the
Board on September 14, 1995 and approved by the Stockholders of the Company on
November 3, 1995, and amended and restated by the Board on July 8, 1997 subject,
with respect to the validation of ISOs granted under the Plan, to approval of
the Plan by the stockholders of the Company at the next Annual Meeting (or
Special Meeting in Lieu of Annual Meeting) of Stockholders. The Plan shall
expire at the end of the day on September 13, 2005 (except as to Options
outstanding on that date). The Board may terminate or amend the Plan in any
respect at any time, except that, without the affirmative vote of the holders of
a majority of the shares of Common Stock present in person or by proxy and
voting on such matter obtained within 12 months before or after the Board adopts
a resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 11); (b) the benefits accruing to participants
under the Plan may not be materially increased; (c) the requirements as to
eligibility for participation in the Plan may not be materially modified; (d)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (e) the provisions of paragraph 14 regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 11); (f) the expiration date of the Plan may
not be extended; and (g) the Board may not take any action which would cause the
Plan to fail to comply with Rule 16b-3. Except as otherwise provided in this
paragraph 12, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.
<PAGE> 9
- 9 -
PART I: NON-FORMULA GRANTS
13. NON-FORMULA GRANT OF STOCK RIGHTS.
Stock Rights may be granted under this Part I at any time prior to
September 14, 2005. The date of grant of a Stock Right under this Part I will be
the date specified by the Committee at the time it grants the Stock Right;
provided, however, that such date shall not be prior to the date on which the
Committee acts to approve the grant.
14. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS. Subject to paragraph 2D, the
exercise price per share specified in the agreement relating to each
Non-Qualified Option granted under Part I shall in no event be less than
the minimum legal consideration required therefor under the laws of the
Commonwealth of Massachusetts or the laws of any jurisdiction in which the
Company or its successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant. For purposes of determining
stock ownership under this paragraph, the rules of Section 424(d) of the
Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
employee may be granted Options treated as ISOs only to the extent that,
in the aggregate under this Plan and all incentive stock option plans of
the Company and any Related Corporation, ISOs do not become exercisable
for the first time by such employee during any calendar year with respect
to stock having a fair market value (determined at the time the ISOs were
granted) in excess of $100,000. The Company intends to designate any
Options granted in excess of such limitation as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option
is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this sentence are available prior
to the date such Option is granted and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the
Common Stock is then traded on a national securities exchange; or (ii) the
last reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if
<PAGE> 10
- 10 -
the Common Stock is not reported on the Nasdaq National Market.
However, if the Common Stock is not publicly traded at the time an Option
is granted under the Plan, "fair market value" shall be deemed to be the
fair value of the Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in
private transactions negotiated at arm's length.
15. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 17 and 18, each Option granted pursuant to this Part I shall expire
on the date specified by the Committee, but not more than (i) eight years from
the date of grant in the case of Options generally and (ii) five years from the
date of grant in the case of ISOs granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, as determined under paragraph
14B. Subject to earlier termination as provided in paragraphs 17 and 18, the
term of each ISO shall be the term set forth in the original instrument granting
such ISO, except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to paragraph 21.
16. EXERCISE OF OPTION. Subject to the provisions of paragraphs 17 through
21, each Option granted under this Part I shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as
the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option granted
pursuant to Part I; provided that the Committee shall not, without the
consent of an optionee, accelerate the exercise date of any installment of
any Option granted to any employee as an ISO (and not previously converted
into a Non-Qualified Option pursuant to paragraph 21) if such acceleration
would violate the annual vesting limitation contained in Section 422(d) of
the Code, as described in paragraph 14C.
17. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 18, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of sixty (60)
days from the date of termination of his employment, but in no event later than
on their specified expiration dates, except to the extent that such ISOs (or
<PAGE> 11
- 11 -
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 21. For purposes of this paragraph 17, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute or contract. A bona fide leave of absence with the written
approval of the Committee shall not be considered an interruption of employment
under this paragraph 17, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or among the Company
and Related Corporations, so long as the optionee continues to be an employee of
the Company or any Related Corporation. Nothing in the Plan shall be deemed to
give any grantee of any Stock Right the right to be retained in employment or
other service by the Company or any Related Corporation for any period of time.
18. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of
the termination of the optionee's employment. For the purposes of the
Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or any successor statute.
19. TRANSFERABILITY AND ASSIGNABILITY. Except as set forth below, (i) no
Stock Right shall be assignable or transferable by an optionee except by will or
by the laws of descent and distribution; and (ii) during the lifetime of the
optionee each Stock Right granted under this Part I shall be exercisable only by
him. Notwithstanding the foregoing, the Committee may, in its discretion,
authorize all or a portion of any Non-Qualified Option granted under this Part I
to be transferable by the optionee to (i) the spouse, children or grandchildren
of the optionee ("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (iii) a partnership of
which such Immediate Family Members are the only partners, provided that (x)
only the Committee may in its discretion permit transfers to other persons or
entities, (y) the stock option agreement pursuant to which the Non-Qualified
Option is granted must be approved by the Committee, and must expressly provide
for transferability at the date of grant in a manner consistent with the Plan,
and (z) subsequent transfers of the transferred
<PAGE> 12
- 12 -
Non-Qualified Option shall be prohibited except in accordance with this
paragraph. Following any such transfer, the Non-Qualified Option shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of paragraph 11, hereof, the term
"optionee" shall be deemed to refer to the transferee. The events of termination
of Business Relationship set forth in the grantee's option agreement shall
continue to be applied with respect to the original optionee, following which
the Non-Qualified Option shall be exercisable by the transferee only to the
extent, and for the periods specified therein.
20. TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to this Part
I shall be evidenced by instruments (which need not be identical) in such forms
as the Committee may from time to time approve. Such instruments shall conform
to the terms and conditions set forth in paragraphs 14 through 19 hereof and may
contain such other provisions as the Committee deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of
Common Stock issuable upon exercise of Options. The Committee may specify that
any Non-Qualified Option granted pursuant to this Part I shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
21. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at the
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in this
Part I shall be deemed to give any optionee the right to have such optionee's
ISOs converted into Non-Qualified Options, and no such conversion shall occur
until and unless the Committee takes appropriate action.
22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO,
each optionee agrees to notify the Company in writing immediately after he makes
a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the
Code and regulations thereunder) of any stock acquired pursuant to the exercise
of ISOs granted under this Part I. A Disqualifying Disposition is generally any
disposition occurring within two years of the date the ISO was granted or within
one year of the date the ISO was exercised, whichever period ends later.
<PAGE> 13
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PART II: FORMULA GRANTS
23. AUTOMATIC FORMULA GRANTS OF NON-QUALIFIED OPTIONS TO NON-EMPLOYEE
DIRECTORS. On the 1st business day in July in each year beginning in July 1998,
each member of the Board who is not an employee or officer of the Company on
such date and who has served as a member of the Board since the last meeting of
stockholders at which directors were elected, shall be automatically granted an
option, subject to adjustment in accordance with paragraph 11, to purchase: (i)
1,000 shares of the Common Stock, multiplied by the number of Board meetings
physically attended by such person during the immediately preceding fiscal year;
plus (ii) 500 shares of the Common Stock, multiplied by the number of Board
meetings such person participated in by telephone during the immediately
preceding fiscal year; plus (iii) 1,000 shares of the Common Stock, multiplied
by the number of committee meetings (other than committee meetings held on the
same day as full Board meetings) physically attended by such person during the
immediately preceding fiscal year; plus (iv) 500 of the Common Stock, multiplied
by the number of committee meetings such person participated in by telephone
during the immediately preceding fiscal year; plus (v) 500 shares of the Common
Stock, multiplied by the number of committee meetings held on the same day as a
Board meeting and physically attended by such person during the immediately
preceding fiscal year; provided, however, that (A) the aggregate number of
shares granted pursuant to clauses (i) and (ii) above shall not exceed 7,500
shares in connection with any grant in any year under this paragraph 23; (B) the
aggregate number of shares granted pursuant to clauses (iii), (iv) and (v) above
shall not exceed 3,750 shares per committee in connection with any grant in any
year under this paragraph 23; and (C) the aggregate number of shares granted
pursuant to clauses (iii), (iv) and (v) above shall not exceed 7,500 shares in
connection with any grant in any year under this paragraph 23.
Except for the specific Options referred to in this paragraph 23, no other
Options shall be granted under this Part II.
24. OPTION PRICE. The purchase price of the shares of Common Stock covered
by any Option granted pursuant to this Part II shall be 100% of the fair market
value of such shares on the day the option is granted, determined in accordance
with Section 14D. The option price will be subject to adjustment in accordance
with the provisions of paragraph 11 of this Plan.
25. PERIOD OF OPTION. Unless sooner terminated in accordance with the
provisions of paragraph 27, an Option granted pursuant to this Part II shall
expire on the date which is eight (8) years after the date of grant of the
Option.
26. VESTING OF SHARES AND TRANSFERABILITY OF OPTIONS.
A. VESTING.
No Option granted under this Part II shall be exercisable until it
becomes vested, and shall vest and thus become exercisable for the
fraction of shares subject to such
<PAGE> 14
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Option set forth opposite the applicable date below (rounded up to
the nearest whole share):
one year from the - one-third of shares subject to the
date of grant Option
two years from the - an additional one-third of
date of grant shares subject to the Option
three years from the - an additional one-third of
date of grant shares subject to the Option
Each of the dates on which an installment of the Option becomes
exercisable pursuant to this paragraph 26 shall be referred to as the
"Annual Vesting Date".
In addition to the number of shares as to which the Option may be
exercised in accordance with this paragraph 26, if the optionee ceases to
be a director of the Company for any reason, other than by reason of a
voluntary resignation by such director, the optionee may exercise an
Option granted pursuant to this Part II for the additional number of
shares as is determined by multiplying (i) the number of shares that would
otherwise vest on the next anniversary of the date of grant by (ii) the
quotient obtained by dividing (A) the number of full months elapsed
between the later of the date on which the Option was granted to the
Optionee and the most recent Annual Vesting Date Prior to the date the
Optionee ceased to be a director of the Company (the "Termination Date")
and the Termination Date divided by (B) 12, provided, however, such number
of shares shall be rounded down to the nearest whole number of shares.
Notwithstanding the foregoing and notwithstanding the last
sentence of paragraph 11B, upon a Change of Control (as defined below),
any then-unexercisable portion of a Option granted pursuant to this Part
II shall become immediately and fully exercisable. For purposes of this
paragraph 26A, "Change of Control" shall mean the closing of: (i) a
merger, consolidation, liquidation or reorganization of the Company into
or with another Company or other legal person, after which merger,
consolidation, liquidation or reorganization the capital stock of the
Company outstanding prior to consummation of the transaction is not
converted into or exchanged for or does not represent more than 50% of the
aggregate voting power of the surviving or resulting entity; (ii) the
direct or indirect acquisition by any person (as the term "person" is used
in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended) of more than 50% of the voting capital stock of the Company, in a
single or series of related transactions; or (iii) the sale, exchange, or
transfer of all or substantially all of the Company's assets (other than a
sale, exchange or transfer to one or more entities where the stockholders
of the Company immediately before such sale, exchange or transfer retain,
directly or indirectly, at least a majority of the beneficial interest in
the voting stock of the entities to which the assets were transferred).
<PAGE> 15
- 15 -
B. TRANSFERABILITY AND ASSIGNABILITY. Except as set forth below,
(i) no Non-Qualified Options granted pursuant to this Part II shall be
assignable or transferable by the optionee except by will or by the laws
of descent and distribution; and (ii) during the lifetime of the optionee
each Non-Qualified Option granted pursuant to this Part II shall be
exercisable only by the optionee. Notwithstanding the foregoing, all or a
portion of the Non-Qualified Options granted pursuant to this Part II to
an optionee will be transferable by such optionee to (i) the spouse,
children or grandchildren of the optionee ("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Immediate Family
Members, or (iii) a partnership of which such Immediate Family Members are
the only partners, provided that subsequent transfers of the transferred
Non-Qualified Option shall be prohibited except in accordance with this
paragraph 26B. Following any such transfer, any such Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of paragraph 11,
hereof the term "optionee" shall be deemed to refer to the transferee. The
termination of Option Rights set forth in paragraph 27 hereof shall
continue to be applied with respect to the original optionee, following
which the Options shall be exercisable by the transferee only to the
extent, and for the periods specified therein.
27. TERMINATION OF OPTION RIGHTS. In the event an optionee ceases to be a
member of the Board for any reason, any then unexercised portion of Options
granted to such optionee shall, to the extent not then vested, immediately
terminate and become void; any portion of an Option which is then vested but has
not been exercised at the time the optionee so ceases to be a member of the
Board may be exercised, to the extent it is then vested, by the optionee within
270 days of the date the optionee ceased to be a member of the Board; and all
Options shall terminate after such 270 days have expired.
28. OPTION AGREEMENT. Each Non-Qualified Option granted under the
provisions of this Part II shall be evidenced by an option agreement, which
agreement shall be duly executed and delivered on behalf of the Company and by
the optionee to whom such Option is granted. The option agreement shall contain
such terms, provisions and conditions not inconsistent with this Plan as may be
determined by the officer executing it.
<PAGE> 1
EXHIBIT 11.1
PAREXEL INTERNATIONAL CORPORATION
STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) $ 10,848 $ 4,599 $(10,630)
======== ======== ========
Weighted average common shares outstanding:
a. Shares attributable to common stock outstanding 18,462 12,904 1,684
b. Shares attributable to common stock options
and preferred stock warrants pursuant to APB15,
paragraph 38(b) 476 656 --
c. Shares attributable to common stock options
pursuant to SAB 83 -- -- 2
-------- -------- --------
Weighted average common shares outstanding 18,938 13,560 1,686
======== ======== ========
Net income (loss) per share $ 0.57 $ 0.34 $ (6.31)
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading contract research organization ("CRO") providing a
broad range of knowledge-based product development and product launch services
on a contract basis to the worldwide pharmaceutical, biotechnology, and medical
device industries. The Company has developed expertise in such disciplines as:
clinical trials management, biostatistical analysis and data management, medical
marketing, clinical pharmacology, regulatory and medical consulting, information
technology, industry training and publishing, and other drug development
consulting services. Founded in 1983, the Company has built its business through
internal expansion and acquisitions.
The Company's services contracts are generally fixed price with some variable
components and range in duration from a few months to several years. A portion
of the fee is typically required to be paid at the time the contract is entered
into and the balance in installments over the duration of the contract, in some
cases on a milestone-achievement basis. Revenue from the contracts is generally
recognized on a percentage-of-completion basis as work is performed.
Most of the Company's contracts are terminable upon 60 to 90 days' notice by the
client. Clients terminate or delay contracts for a variety of reasons,
including, among others, the failure of products being tested to satisfy safety
requirements, unexpected or undesired clinical results of the product, the
client's decision to forego a particular study, insufficient patient enrollment
or investigator recruitment, or production problems resulting in shortages of
the drug.
As is customary in the industry, the Company routinely subcontracts with third
party investigators in connection with clinical trials and with other third
party service providers for laboratory analysis and other specialized services.
These and other reimbursable costs are paid by the Company and reimbursed by
clients and, in accordance with industry practice, are included in gross
revenue. Reimbursed costs vary from contract to contract. Accordingly, the
Company views net revenue, which consists of gross revenue less reimbursed
costs, as its primary measure of revenue growth.
Direct costs consist of compensation and related fringe benefits for
project-related employees, other project-related costs not reimbursed, and
allocated facilities and information systems costs. Selling, general, and
administrative expenses consist of compensation and related fringe benefits for
selling and administrative employees, professional services, and advertising
costs, as well as allocated costs related to facilities and information systems.
GLOBAL OPERATIONS
The following table presents the net revenue by geographic region and the
percentage of total net revenue represented by each region for the three years
ended June 30, 1997:
<TABLE>
<CAPTION>
($ in thousands) 1997 % OF TOTAL 1996 % OF TOTAL 1995 % OF TOTAL
- ---------------- ---- ---------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
North America $102,913 64.4% $54,179 61.6% $35,037 59.8%
Europe 53,599 33.6% 32,834 37.3% 23,443 40.0%
Asia/Pacific 3,167 2.0% 993 1.1% 93 0.2%
Total $159,679 100.0% $88,006 100.0% $58,573 100.0%
</TABLE>
The Company's foreign subsidiaries generally enter into contracts denominated in
the local currency of the foreign subsidiary. Because expenses of the foreign
subsidiaries are generally paid in the local currency, such foreign
subsidiaries' local currency earnings are not materially affected by
fluctuations in exchange rates. However, changes in the exchange rates between
these local currencies and the U.S. dollar will affect the translation of such
subsidiaries' financial results into U.S. dollars for the purposes of reporting
the Company's consolidated financial results. In cases where the Company
contracts for a multi-country clinical trial and a significant portion of the
contract expenses are in a currency other than the contract currency, the
Company seeks to contractually shift to its client the effect of fluctuations in
the relative values of the contract currency and the currency that the expenses
are incurred. To the extent the Company is unable to shift to its clients the
effects of currency fluctuations, these fluctuations could have a material
effect on the Company's results of operations. The Company does not currently
hedge against the risk of exchange rate fluctuations.
16
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As the Company conducts operations on a global basis, the Company's effective
tax rate has depended, and will continue to depend, upon the distribution of its
revenue among geographic locations with varying tax rates.
The Company's results of operations may be affected by changes in the tax rates
of the various jurisdictions. In particular, from period to period, as the
geographic mix of the Company's results of operations among various tax
jurisdictions changes, the Company's effective tax rate may vary significantly.
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following table
indicates the percentage relationships of income and expense items included in
the Consolidated Statements of Operations for the three years ended June 30,
1997, and the percentage changes in those items for such years:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
FOR THE YEARS ENDED JUNE 30, PERCENTAGE INCREASE
1997 1996 1995 1996 TO 1997 1995 TO 1996
---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 81.4% 50.3%
Costs and expenses:
Direct costs 68.2% 68.3% 71.9% 81.1% 42.7%
Selling, general and administrative 20.1% 21.6% 22.7% 68.5% 43.1%
Depreciation and amortization 3.1% 2.7% 3.9% 114.0% 4.1%
Impairment of long-lived assets -- -- 19.2% -- *
----- ----- ------ ----- ----
Income (loss) from operations 8.6% 7.4% (17.7)% 110.5% *
===== ===== ====== ===== ====
</TABLE>
* not meaningful
FISCAL YEAR ENDED JUNE 30, 1997, COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Net revenue increased $71.7 million, or 81.4%, from $88.0 million for fiscal
1996 to $159.7 million for 1997. This growth in revenue was primarily
attributable to an increase in the volume and average contract value of clinical
research projects serviced by the Company and to a lesser extent, the Company's
six acquisitions since June 1996. In fiscal 1997, net revenue in North America
and in Europe increased $48.7 million and $20.8 million, respectively, over the
prior year.
Direct costs increased $48.8 million, or 81.1%, from $60.1 million for fiscal
1996 to $108.9 million for 1997. This increase in direct costs was due to the
increase in the number of project-related personnel, hiring, facilities, and
information system costs necessary to support the increased level of operations.
As a percentage of net revenue, direct costs remained essentially unchanged,
decreasing slightly from 68.3% in fiscal 1996 to 68.2% in 1997.
Selling, general, and administrative expenses increased $13.0 million, or 68.5%,
from $19.0 million for fiscal 1996 to $32.1 million for 1997. This increase was
primarily due to increased costs associated with additional administrative
personnel, greater hiring and selling costs, and additional facilities to
accommodate the Company's growth. As a percentage of net revenue, selling,
general, and administrative expenses decreased from 21.6% in fiscal 1996 to
20.1% in 1997, primarily due to leveraging of infrastructure over an expanding
revenue base.
Depreciation and amortization expense increased $2.7 million, or 114.0% from
$2.3 million for fiscal 1996 to $5.0 million for 1997. This increase was
primarily due to increased capital spending on computer equipment and facilities
to support the increase in project-related personnel required to support the
increased level of operations.
Income from operations increased $7.2 million, or 110.5%, from $6.5 million for
fiscal 1996 to $13.7 million in 1997. As a percentage of net revenue, income
from operations increased to 8.6% in fiscal 1997, compared to 7.4% in 1996.
Interest income increased $2.2 million in fiscal 1997 as a result of higher
average balances of cash and investments. This increase was due to proceeds from
the Company's public offering and cash generated from operations.
The Company's effective income tax rate decreased from 39.9% in fiscal 1996 to
36.0% in fiscal 1997. This decrease was attributable to changes in the mix of
taxable income from the different geographic jurisdictions that the Company
operated in fiscal 1997 compared to 1996.
17
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FISCAL YEAR ENDED JUNE 30, 1996, COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Net revenue increased $29.4 million, or 50.3%, from $58.6 million for fiscal
1995 to $88.0 million for 1996. This net revenue growth was attributable to an
increase in the number and average contract value of clinical research projects
serviced by the Company, many of which have a multi-national scope.
Direct costs increased $18.0 million, or 42.7%, from $42.1 million for fiscal
1995 to $60.1 million for 1996. This increase in direct costs was due to the
increase in the number of project-related personnel, facilities, and information
system costs necessary to support the increased level of operations. Direct
costs as a percentage of net revenue decreased from 71.9% for 1995 to 68.3% for
1996, primarily due to improved workforce and facility utilization.
Selling, general and administrative expenses increased $5.7 million, or 43.1%,
from $13.3 million for fiscal 1995 to $19.0 million for 1996. This increase was
primarily due to increased costs associated with additional administrative
personnel, greater hiring and selling costs, and additional facilities to
support the Company's growth and operation as a publicly held company. Selling,
general and administrative expenses as a percentage of net revenue decreased
from 22.7% for fiscal 1995 to 21.6% for 1996, primarily due to leveraging of
infrastructure over an expanded revenue base.
Depreciation and amortization expense increased $92,000, or 4.1%, from $2.2
million for fiscal 1995 to $2.3 million for 1996. The change resulted from an
increase in depreciation associated with increased capital expenditures, offset
by a decrease in depreciation and amortization due to the write-down of impaired
long-lived assets of the Company's German operations. See Note 3 to the
Consolidated Financial Statements entitled, "Impairment of Long Lived Assets."
Depreciation and amortization expense in fiscal 1995 includes approximately
$588,000 related to long-lived assets which were written-down and did not recur
in 1996.
Income from operations for fiscal 1996 was $6.5 million, compared to a loss from
operations of $10.4 million for 1995. Results for 1995 included an $11.3 million
noncash charge related to the write-down of impaired long-lived assets of the
Company's German operations. Income from operations for 1995, excluding the
impact of the asset impairment charge, was approximately $303,000.
Interest income increased by $1.1 million in fiscal 1996. This increase resulted
from higher average balances of cash and investments due primarily to proceeds
from the Company's public offerings in November 1995 and March 1996.
The Company's effective income tax rate was 39.9% for fiscal 1996. The effective
tax rate in fiscal 1995, excluding the effect of the $11.3 million noncash,
nondeductible write-down due to the impairment of long-lived assets, would have
been 89.4%. The effective income tax rate may vary with changes in the mix of
taxable income from the different geographic jurisdictions in which the Company
operates.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and growth,
including acquisition costs, with cash flow from operations and the proceeds
from the sale of equity securities. Investing activities primarily reflect
capital expenditures for information systems enhancements, leasehold
improvements, and net purchases of marketable securities.
The Company's clinical research and development contracts are generally fixed
price with some variable components, and range in duration from a few months to
several years. The cash flows from contracts typically consists of a down
payment required to be paid at the time the contract is entered into and the
balance in installments over the contract's duration, in some cases on a
milestone-achievement basis. Revenue from contracts is recognized on a
percentage-completion basis as the work is performed. Accordingly, cash receipts
do not necessarily correspond to costs incurred and revenue recognized on
contracts.
The Company's cash flow is influenced by the changes in levels of billed and
unbilled accounts receivable, net of amounts advance billed representing
unearned revenue. As a result, the number of days outstanding in accounts
receivable, net of advance billings, and the related dollar values of these
accounts can vary due to the achievement of contractual milestones and the
timing and size of cash receipts. The number of days revenue outstanding, net of
advance billings, was 45 days at June 30, 1997, down from 47 days at June 30,
1996. Accounts receivable, net of the allowance for doubtful accounts, increased
from $39.3 million at June 30, 1996, to $63.0 million at June 30, 1997, while
advance billings increased from $20.0 million at June 30, 1996, to $32.6 million
at June 30, 1997, both consistent with the growth in revenue in fiscal 1997.
18
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Unrestricted cash and cash equivalents increased by $12.1 million during fiscal
1997 as a result of $14.8 million of cash provided by operations and $57.0
million provided by financing activities, offset by $58.7 million of cash used
for investing activities and a $968,000 unfavorable effect of exchange rate
changes.
Net cash provided by operating activities resulted primarily from net income,
excluding noncash expenses, of $15.9 million and increases in advance billings
and other current liabilities of $12.2 million and $11.5 million, respectively.
Cash used by operating activities included increases in accounts receivable and
other current assets of $21.7 million and $2.7 million, respectively.
Financing activities consisted primarily of net proceeds of approximately $57.2
million from the Company's December 1996 follow-on public offering of 2,516,300
shares of common stock net of repayments of long-term debt of $3.4 million. Debt
repayments included $2.3 million to retire third party debt assumed during the
August 1996 acquisition of State and Federal Associates, Inc.
Investing activities consisted of net purchases of marketable securities of
$37.5 million and capital expenditures. The Company has invested approximately
$22.0 million in fiscal 1997 for capital expenditures related to facility
expansion and investments in information systems technology and expects to
invest approximately $25.0 million in the next twelve months.
The Company has domestic and foreign lines of credit with banks totaling
approximately $12.5 million, and a capital lease line of credit with a U.S. bank
for $2.4 million. At June 30, 1997, the Company had approximately $13.7 million
in available credit under these arrangements.
The Company's primary short-term and long-term cash needs are for the payment of
the salaries and fringe benefits, hiring and recruiting expenses, business
development costs, capital expenditures and facility-related expenses. The
Company believes that its existing capital resources together with cash flows
from operations and borrowing capacity under existing lines of credit, will be
sufficient to meet its foreseeable cash needs. In the future, the Company will
consider acquiring businesses to enhance its service offerings, therapeutic
base, and global presence. Any such acquisitions may require additional external
financing, and the Company may from time to time seek to obtain funds from
public or private issuances of equity or debt securities. There can be no
assurance that such financing will be available on terms acceptable to the
Company.
The statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements which
involve risks and uncertainties. The Company's actual experience may differ
materially from that discussed above. Factors that might cause such a difference
include, but are not limited to, the loss or delay of large contracts, the
Company's dependence on certain industries and clients and government regulation
of such industries and clients, competition or consolidation within the
industry, as well as those discussed in "Risk Factors" in the Company's Annual
Report on Form 10-K.
INFLATION
The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial condition.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." This statement establishes and simplifies standards for computing and
presenting earnings per share. SFAS No. 128 will be effective for the Company's
second quarter of fiscal 1998 and requires the restatement of all previously
reported earnings per share data presented. Early adoption of this Statement is
not permitted. SFAS No. 128 replaces primary and fully diluted earnings per
share with basic and diluted earnings per share. The Company expects that basic
and diluted earnings per share amounts will not be materially different from the
Company's primary and fully diluted earnings per share amounts.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the consolidated financial
statements. SFAS No. 131 establishes standards for reporting information on
operating segments in interim and annual financial statements. Both statements
are effective for the Company for fiscal 1999.
19
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
(in thousands, except share data) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 207,840 $ 121,869 $ 79,928
Reimbursed costs (48,161) (33,863) (21,355)
--------- --------- --------
NET REVENUE 159,679 88,006 58,573
--------- --------- --------
Costs and expenses:
Direct costs 108,939 60,141 42,140
Selling, general and administrative 32,055 19,027 13,294
Depreciation and amortization 5,014 2,343 2,251
Impairment of long-lived assets -- -- 11,253
--------- --------- --------
146,008 81,511 68,938
--------- --------- --------
INCOME (LOSS) FROM OPERATIONS 13,671 6,495 (10,365)
Interest income 3,465 1,297 213
Interest expense (185) (162) (172)
Other income (expense), net (7) 22 14
--------- --------- --------
3,273 1,157 55
--------- --------- --------
Income (loss) before provision for income taxes 16,944 7,652 (10,310)
Provision for income taxes 6,096 3,053 320
--------- --------- --------
NET INCOME (LOSS) $ 10,848 $ 4,599 $(10,630)
========= ========= ========
Net income (loss) per share $ 0.57 $ 0.34 $ (6.31)
========= ========= ========
Weighted average common and common
equivalent shares outstanding 18,938 13,560 1,686
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
($ in thousands, except share data) 1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Unrestricted $ 28,368 $ 16,243
Restricted 1,967 858
Marketable securities 66,891 29,319
Accounts receivable, net 63,009 39,277
Other current assets 11,632 6,905
--------- ---------
Total current assets 171,867 92,602
Property and equipment, net 27,530 8,193
Other assets 1,604 1,606
--------- ---------
$ 201,001 $ 102,401
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 1,135 $ 762
Accounts payable 7,999 7,003
Advance billings 32,592 20,008
Other current liabilities 19,680 11,401
--------- ---------
Total current liabilities 61,406 39,174
Long-term debt 55 360
Other liabilities 1,715 1,655
--------- ---------
Total liabilities 63,176 41,189
--------- ---------
Commitments and contingencies Stockholders' equity:
Preferred stock - $.01 par value; shares authorized: 5,000,000 -- --
Common stock - $.01 par value; shares authorized:
50,000,000 at June 30, 1997, and 25,000,000 at June 30, 1996;
shares issued: 20,066,867 at June 30, 1997, and 15,654,220 at
June 30, 1996; shares outstanding: 20,037,455 at June 30, 1997,
and 15,624,808 at June 30, 1996 200 156
Additional paid-in capital 131,421 66,213
Retained earnings (accumulated deficit) 6,977 (5,199)
Cumulative translation adjustment (773) 42
--------- ---------
Total stockholders' equity 137,825 61,212
--------- ---------
$ 201,001 $ 102,401
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
--------------------- ----------------------------------
Retained
Additional Earnings Stock
Number Issuance Number Par Paid-In (Accumulated Subscriptions
($ in thousands, except share data) of Shares Price, Net of Shares Value Capital Deficit) Receivable
---------- -------- ---------- ---- ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 2,327,744 $ 23,683 1,646,090 $ 16 $ 350 $ 1,804 $(163)
Shares issued under stock option
plans 43,972 2 64
Repurchase of common shares (2,746) (17)
Proceeds from stock subscriptions
receivable 6
Foreign currency translation
Net loss (10,630)
---------- -------- ---------- ---- ----------- ------- ------
BALANCE AT JUNE 30, 1995 2,327,744 23,683 1,687,316 18 397 (8,826) (157)
Convertible preferred stock issued
upon exercise of warrants 176,887 1,769
Proceeds from stock subscriptions
receivable 157
Conversion of preferred stock
into common upon initial
public offering (2,504,631) (25,452) 8,956,016 88 25,364
Payment of accrued preferred
stock dividends (940)
Net proceeds from public offerings 4,200,000 42 36,845
Shares issued under stock option
plans 619,840 6 405
Acquisitions 161,636 2 144 (76)
Income tax benefit from exercise
of stock options 3,058
Net unrealized gain on marketable
securities 44
Foreign currency translation
Net income 4,599
---------- -------- ---------- ---- ----------- ------- ------
BALANCE AT JUNE 30, 1996 - - 15,624,808 156 66,213 (5,199) -
Net proceeds from public offering 2,516,300 25 57,161
Shares issued under stock option
plans 524,122 5 1,427
Shares issued under employee stock
purchase plan 154,384 2 1,743
Income tax benefit from exercise
of stock options 4,527
Income tax benefit from
building acquisition 320
Net unrealized gain on marketable
securities 97
Acquisitions 1,217,841 12 30 1,231
Foreign currency translation
Net income 10,848
---------- -------- ---------- ---- ----------- ------- ------
Balance at June 30, 1997 - - 20,037,455 $200 $131,421 $ 6,977 -
========== ======== ========== ==== =========== ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 8
<TABLE>
<CAPTION>
Total
Cumulative Stock-
Translation Holders'
($ in thousands, except share data) Adjustment Equity
------- --------
<S> <C> <C>
BALANCE AT JUNE 30, 1994 $ (454) $ 25,236
Shares issued under stock option
plans 66
Repurchase of common shares (17)
Proceeds from stock subscriptions
receivable 6
Foreign currency translation 863 863
Net loss (10,630)
------ --------
BALANCE AT JUNE 30, 1995 409 15,524
Convertible preferred stock issued
upon exercise of warrants 1,769
Proceeds from stock subscriptions
receivable 157
Conversion of preferred stock
into common upon initial
public offering -
Payment of accrued preferred
stock dividends (940)
Net proceeds from public offerings 36,887
Shares issued under stock option
plans 411
Acquisitions 70
Income tax benefit from exercise
of stock options 3,058
Net unrealized gain on marketable
securities 44
Foreign currency translation (367) (367)
Net income 4,599
------- --------
BALANCE AT JUNE 30, 1996 42 61,212
Net proceeds from public offering 57,186
Shares issued under stock option
plans 1,432
Shares issued under employee stock
purchase plan 1,745
Income tax benefit from exercise
of stock options 4,527
Income tax benefit from
building acquisition 320
Net unrealized gain on marketable
securities 97
Acquisitions 1,273
Foreign currency translation (815) (815)
Net income 10,848
------- --------
Balance at June 30, 1997 $ (773) $137,825
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22 (continued)
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
($ in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,848 $ 4,599 $(10,630)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,014 2,343 2,251
Restructuring transactions -- (135) (683)
Impairment of long-lived assets -- -- 11,253
Change in assets and liabilities, net of effects from acquisitions:
Restricted cash (1,109) 502 (929)
Accounts receivable, net (20,727) (15,086) (281)
Other current assets (2,697) 54 (1,395)
Other assets (882) (144) (79)
Accounts payable (50) 4,605 256
Advance billings 12,168 6,383 3,953
Other current liabilities 11,473 3,347 1,932
Other liabilities 782 (18) 56
--------- --------- ---------
Net cash provided by operating activities 14,820 6,450 5,704
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (118,698) (131,903) (3,510)
Proceeds from sale of marketable securities 81,223 104,128 2,710
Cash related to acquisition activities 781 52 --
Purchase of property and equipment (22,018) (5,039) (1,460)
--------- --------- ---------
Net cash used by investing activities (58,712) (32,762) (2,260)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock -- 1,769 --
Proceeds from issuance of common stock 60,363 37,298 66
Cash received from stock subscriptions -- 157 6
Purchase of treasury stock -- -- (17)
Repayments of long-term debt (3,378) (889) (684)
Dividends on convertible preferred stock -- (940) --
--------- --------- ---------
Net cash provided (used) by financing activities 56,985 37,395 (629)
--------- --------- ---------
Effect of exchange rate changes on unrestricted cash and
cash equivalents (968) (155) 134
--------- --------- ---------
Net increase in unrestricted cash and cash equivalents 12,125 10,928 2,949
Unrestricted cash and cash equivalents at beginning of year 16,243 5,315 2,366
--------- --------- ---------
Unrestricted cash and cash equivalents at end of year $ 28,368 $ 16,243 $ 5,315
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 194 $ 165 $ 179
Income taxes $ 1,226 $ 1,649 $ 565
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property and equipment acquired under capital lease obligations -- $ 536 $ 1,265
Income tax benefit from exercise of stock options $ 4,527 $ 3,058 --
Income tax benefit from building acquisition $ 320 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
The Company is a leading contract research organization ("CRO") providing a
broad range of knowledge-based product development and product launch services
on a contract basis to the worldwide pharmaceutical, biotechnology, and medical
device industries. The Company has developed expertise in such disciplines as:
clinical trials management, biostatistical analysis and data management, medical
marketing, clinical pharmacology, regulatory and medical consulting, information
technology, industry training and publishing, and other drug development
consulting services.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PAREXEL
International Corporation and its wholly-owned domestic and foreign
subsidiaries. In fiscal year 1997, the Company's French subsidiary changed its
fiscal year end to June 30, which resulted in a 13-month year. The additional
month is included in the fiscal year 1997 results of operations and does not
materially affect the Company's consolidated financial statements. For fiscal
year 1997, the Company's German subsidiary operated on a fiscal year that ended
May 31. For fiscal years 1996 and 1995, the Company's German and French
subsidiaries operated on a fiscal year that ended May 31. All significant
intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities. Actual results may differ from
those estimates.
REVENUE
Fixed price contract revenue is recognized using the percentage-of-completion
method based on the ratio that costs incurred to date bear to estimated total
costs at completion. Revenue from other contracts is recognized as services are
provided. Revenue related to contract modifications is recognized when
realization is assured and the amounts are reasonably determinable. Adjustments
to contract cost estimates are made in the periods in which the facts that
require the revisions become known. When the revised estimate indicates a loss,
such loss is provided in the current period in its entirety. "Unbilled accounts
receivable" represents revenue recognized in excess of amounts billed. "Advance
billings" represents amounts billed in excess of revenue recognized.
INVESTIGATOR FEES
Investigator fees are accrued as investigator services are rendered. The timing
of payments to investigators is determined by reference to predetermined
contractual arrangements, which may differ from the accrual of the expense.
Payments to investigators in excess of amounts accrued are classified as prepaid
expenses included in other current assets, and accrued expenses in excess of
amounts paid are classified as other current liabilities.
CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES, AND FINANCIAL INSTRUMENTS
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. Marketable securities
include securities purchased with original maturities of greater than three
months. Cash equivalents and marketable securities are classified as "available
for sale" and are carried at fair market value. Any unrealized gains or losses
are recorded as part of stockholders' equity. Restricted cash consists of
advances and deposits from customers subject to certain restrictions.
The Company occasionally purchases securities with seven-day put options that
allow the Company to sell the underlying securities in seven days at par value.
The Company uses these derivative financial instruments on a limited basis to
shorten contractual maturity dates, thereby managing interest rate risk.
Approximately $2.7 million of securities were subject to seven-day put options
at June 30, 1997, and $1.0 million at June 30, 1996. The Company does not hold
derivative instruments for trading purposes.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations of
credit risk include trade accounts receivable. However, such risk is limited due
to the large number of clients and their international dispersion. In addition,
the Company maintains reserves for potential credit losses and such losses, in
the aggregate, have not exceeded management expectations. One customer accounted
for 11% of the Company's consolidated net revenue for the year ended June 30,
1997. No single customer accounted for more than 10% of the Company's
consolidated net revenue for the years ended June 30, 1996 and 1995.
24
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets ranging from
three to eight years. Leasehold improvements are amortized over the lesser of
the estimated useful lives of the improvements or the remaining lease term.
Repair and maintenance costs are charged to expense as incurred.
INTANGIBLE ASSETS
Intangible assets consist principally of goodwill,
customer lists, covenants not to compete, and other intangible assets
attributable to businesses acquired. Goodwill represents the excess of the cost
of businesses acquired over the fair value of the related net assets at the date
of acquisition. Intangible assets are amortized using the straight-line method
over their expected useful lives. Goodwill and other intangibles are currently
being amortized over five to ten years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses the recoverability of the carrying amount of
long-lived assets, including intangible assets. A loss is recognized when
expected future cash flows (undiscounted and without interest) are less than the
carrying amount of the asset. The amount of the impairment loss is determined as
the difference by which the carrying amount of the asset exceeds the fair value
of the asset.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109. Deferred tax assets and liabilities are recognized
for the expected future tax consequences, utilizing current tax rates, of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. Deferred tax assets are recognized, net of any valuation
allowance, for the estimated future tax effects of deductible temporary
differences and tax operating loss and credit carryforwards. Deferred income tax
expense represents the change in the net deferred tax asset and liability
balances.
FOREIGN CURRENCY
Assets and liabilities of the Company's international operations are translated
into U.S. dollars at exchange rates in effect at the balance sheet date. Income
and expense items are translated at average exchange rates prevailing during the
year. Translation adjustments are accumulated in a separate component of
stockholders' equity. Realized gains and losses recorded in the statements of
operations were not material.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated based on the weighted average number
of common shares and common equivalent shares assumed outstanding during the
period. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, certain common and common equivalent shares issued by the Company during
the twelve months immediately preceding the initial filing of the registration
statement relating to the Company's initial public offering have been included
in the calculation of weighted average shares, using the treasury stock method
and the initial public offering price, as if these shares were outstanding for
all periods prior to the initial public offering.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected
to continue to follow the accounting provisions of Accounting Principles Board
Opinion (APBO) No. 25, "Accounting for Stock Issued to Employees," and furnish
pro forma disclosures. Since the exercise price of the Company's stock options
was equal to the market price of the underlying stock on the date of grant, no
compensation expense was recognized.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
statement replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. SFAS No. 128 will be effective for the Company's
second quarter of fiscal 1998 and requires the restatement of all previously
reported earnings per share data presented. Early adoption of this Statement is
not permitted. The Company expects that basic and diluted earnings per share
amounts will not be materially different from the Company's primary and fully
diluted earnings per share amounts.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the consolidated financial
statements. SFAS No. 131 establishes standards for reporting information on
operating segments in interim and annual financial statements. Both statements
are effective for the Company for fiscal 1999.
25
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In the third quarter of fiscal 1995, PAREXEL GmbH's operations suffered a
decline in net revenue resulting in a net loss for the period. Also during the
third quarter, drug development regulations in Germany and Europe were modified
and further changes were being contemplated, all of which were expected to have
a detrimental impact on PAREXEL GmbH's operations. Considering the cumulative
impact of the above-described factors, management assessed the realizability of
the long-lived assets of PAREXEL GmbH.
In accordance with its accounting policy for impaired long-lived assets,
management prepared a forecast of PAREXEL GmbH's expected future cash flows on
an undiscounted basis and without interest charges, based upon assumptions
developed by management using PAREXEL GmbH's historical experience as well as
the best estimate of future trends and events. The sum of the forecasted cash
flows from management's model was less than the carrying amount of PAREXEL's
investment in PAREXEL GmbH.
To assess the fair value of PAREXEL GmbH, a discounted cash flow valuation
technique was utilized with a discount rate of approximately 19.5% based upon
PAREXEL GmbH's calculated cost of capital. The results of this calculation
indicated a de minimus valuation; and accordingly, the Company recorded an
impairment loss on long-lived assets of $11.3 million in fiscal 1995.
NOTE 4. ACQUISITIONS
In February 1997, the Company acquired, in separate transactions, RESCON, Inc.,
a medical marketing consulting business located in the Washington, D.C. area,
and Sheffield Statistical Services, Ltd. (S-Cubed), a company located in the
United Kingdom that specializes in biostatistical analysis. The Company issued a
total of 209,537 shares of common stock in exchange for all the outstanding
shares of RESCON and S-Cubed.
In August 1996, the Company acquired, in separate transactions, Lansal Clinical
Pharmaceutics, Limited (Lansal), a contract research organization located in
Israel, and State and Federal Associates, Inc. (S&FA), a medical marketing
business located in the Washington, D.C. area. The Company issued 1,008,304
shares of common stock in exchange for all of the outstanding shares of Lansal
and S&FA.
In June 1996, the Company acquired, in separate transactions, Sitebase Clinical
Systems, Inc. (Sitebase), a provider of remote data entry technology, and
Caspard Consultants (Caspard), a Paris-based biostatistical and data management
consulting company. The Company issued a total of 161,636 shares of common stock
in exchange for all of the outstanding shares of Sitebase and Caspard.
All of these transactions were accounted for as poolings of interests. The
aggregate historical results of operations and financial position of the above
acquisitions were not material to the Company's consolidated financial
statements. Therefore, prior period amounts have not been restated and results
of operations of the acquired companies have been included since the period of
acquisition. Pro forma results of the Company, assuming the above acquisitions
were made at the beginning of each period presented, would not be materially
different from the actual results reported.
26
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INVESTMENTS
Available-for-sale securities included in cash and cash equivalents as of June
30, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Money market $ 988 $ 2,492
Municipal securities 1,000 10,000
Repurchase agreements 20,210 1,141
- --------------------------------------------------------------------------------
$22,198 $13,633
- --------------------------------------------------------------------------------
</TABLE>
Available-for-sale securities included in marketable securities at June 30,
1997, consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED FAIR
($ in thousands) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal securities $ 3,785 $ 5 $ (2) $ 3,788
Federal government securities 23,400 -- (1) 23,399
Corporate debt securities 39,565 140 (1) 39,704
- ---------------------------------------------------------------------------------------
$ 66,750 $ 145 $ (4) $ 66,891
- ---------------------------------------------------------------------------------------
</TABLE>
Available-for-sale securities included in marketable securities at June 30,
1996, consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED FAIR
($ in thousands) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal securities $ 16,972 $ 3 $ (34) $ 16,941
Federal government securities 10,344 66 (1) 10,409
Corporate debt securities 1,959 10 -- 1,969
- ---------------------------------------------------------------------------------------
$ 29,275 $ 79 $ (35) $ 29,319
- ---------------------------------------------------------------------------------------
</TABLE>
The contractual maturity of available-for-sale securities at June 30, 1997, was
$67.3 million within one year, $19.1 million over one year and less than five
years, and $2.7 million over five years. Proceeds from the maturities and sales
of available-for-sale securities amounted to approximately $1.9 billion for the
year ended June 30, 1997, $568 million for the year ended June 30, 1996, and $3
million for the year ended June 30, 1995. Purchases amounted to approximately
$1.9 billion for the year ended June 30, 1997, $607 million for the year ended
June 30, 1996, and $4 million for the year ended June 30, 1995. Gains and losses
realized upon the sale of securities (the cost of which is based upon the
specific identification method) were not significant.
NOTE 6. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Billed $ 38,759 $ 21,286
Unbilled 26,961 19,490
Allowance for doubtful accounts (2,711) (1,499)
- --------------------------------------------------------------------------------
$ 63,009 $ 39,277
- --------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Computer and office equipment $22,874 $10,527
Computer software 5,304 1,725
Furniture and fixtures 8,876 3,058
Leasehold improvements 2,286 652
Building 2,757 --
- --------------------------------------------------------------------------------
42,097 15,962
Less accumulated depreciation and amortization 14,567 7,769
- --------------------------------------------------------------------------------
$27,530 $ 8,193
================================================================================
</TABLE>
Included in the above amounts is computer and office equipment acquired under
capital lease obligations of approximately $3.6 million at June 30, 1997 and
1996. Accumulated depreciation on computer and office equipment under capital
leases totaled approximately $2.4 million and $1.8 million at June 30, 1997 and
1996, respectively.
Depreciation and amortization expense relating to property and equipment was
approximately $4.9 million, $2.1 million, and $1.7 million for the years ended
June 30, 1997, 1996, and 1995, respectively, of which $560,000, $634,000, and
$427,000 related to amortization of property and equipment under capital leases.
NOTE 8. OTHER CURRENT LIABILITIES
Other current liabilities at June 30, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation and withholdings $ 8,944 $ 4,281
Accrued investigator fees 350 1,565
Other 10,386 5,555
- --------------------------------------------------------------------------------
$19,680 $11,401
================================================================================
</TABLE>
NOTE 9. CREDIT ARRANGEMENTS
The Company has domestic and foreign line of credit arrangements with banks
totaling approximately $12.5 million. The lines are collateralized by accounts
receivable, payable on demand, and bear interest at varying rates that differ
from country to country (resulting in interest rates ranging from 4.9% to 9.5%
at June 30, 1997). The lines of credit expire at various dates through April
1998 and are renewable. At June 30, 1997, there was approximately $800,000
outstanding under these lines of credit. There were no amounts outstanding at
June 30, 1996.
The Company has a $2.4 million capital lease line of credit with a U.S. bank for
the financing of property and equipment. This line is collateralized by property
and equipment. Borrowings under this line are payable over a three-year term
with interest fixed at the five-year U.S. Treasury note rate plus 2.5% (8.03% at
June 30, 1997). This line of credit expires on November 30, 1997, and is
renewable annually. Available capacity under this line was approximately $2.0
million at June 30, 1997.
Long-term debt at June 30, 1997 and 1996, consisted of borrowings under the
capital lease line. The fair value of debt is estimated based on the market
value for similar debt and approximates carrying value at June 30, 1997 and
1996. Aggregate lease obligations bear a weighted average interest rate of
approximately 8.3% at June 30, 1997, and 7.9% at June 30, 1996. Long-term debt
matures as follows: $26,000 in fiscal 1999 and $29,000 in fiscal 2001.
28
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY
On January 28, 1997, the Board of Directors of the Company declared a
two-for-one stock split of the Company's common stock, payable in the form of a
100% stock dividend to be distributed to stockholders of record as of the close
of business on February 7, 1997. All share and per share data, including stock
and stock option, stock purchase plan, and market price information, included in
these consolidated financial statements have been restated to reflect the
two-for-one stock split.
As of June 30, 1997 and 1996, there were 5 million shares of preferred stock,
$0.01 per share, authorized, but none were issued or outstanding. Preferred
stock may be issued at the discretion of the Board of Directors (without
stockholder approval) with such designations, rights and preferences, as the
Board of Directors may determine.
There were 29,412 shares of common stock held in treasury as of June 30, 1997
and 1996, at a cost of $17,430.
NOTE 11. STOCK AND EMPLOYEE BENEFIT PLANS
COMMON STOCK OPTIONS
In September 1995, the Company adopted the 1995 Stock Plan (1995 Plan), which
provides for the grant of incentive stock options for the purchase of up to an
aggregate of 1,000,000 shares of common stock to directors, officers, employees,
and consultants of the Company. In November 1996, the Company's stockholders
approved an increase in the number of shares issuable under the 1995 Plan from
1,000,000 to 2,000,000 shares. The Stock Option Committee of the Board of
Directors is responsible for the administration of the Company's stock option
plans and determines the term of each option, the option exercise price, number
of shares granted, and the rate that options vest. Options generally expire
eight to ten years from the date of grant and generally vest over four to five
years.
In September 1995, the Company adopted the 1995 Non-Employee Director Stock
Option Plan (Director Plan) under which options to purchase an aggregate of
600,000 shares of common stock may be granted to nonemployee directors. On
November 21, 1995, nonemployee directors were granted an aggregate of 173,000
options (initial options). The initial options became exercisable on June 30,
1996. Other options granted under the Director Plan vest ratably in three equal
annual installments beginning on the first anniversary of the date of grant,
subject to certain requirements as defined in the Director Plan.
In September 1995, the Board of Directors voted to grant no further options
under the 1986 Incentive Stock Option Plan, the 1987 Stock Plan, and the 1989
Stock Plan and to reduce the number of shares authorized for those plans to the
number of options outstanding at that time.
29
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Aggregate stock option activity for the two years ended June 30, 1997, was as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at June 30, 1995 1,274,906 $ 1.59
Granted 838,000 13.57
Canceled (52,146) 5.03
Exercised (619,840) 0.61
--------- ---------
Outstanding at June 30, 1996 1,440,920 $ 8.85
Granted 410,500 24.38
Canceled (31,260) 19.98
Exercised (524,122) 2.75
--------- ---------
Outstanding at June 30, 1997 1,296,038 $ 15.97
========= =========
Exercisable at June 30, 1997 479,153 $ 9.33
========= =========
Available for future grant at June 30, 1997 1,431,426
========= =========
</TABLE>
Summary information related to options outstanding and exercisable as of June
30, 1997, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISE AS OF CONTRACTUAL LIFE EXERCISE AS OF EXERCISE
PRICES 6/30/97 (YEARS) PRICE 6/30/97 PRICE
- ----------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.30 - 10.00 472,188 7.07 $ 6.22 377,136 $ 6.01
10.01 - 20.00 406,650 8.79 18.50 49,750 18.31
20.01 - 27.25 417,200 9.30 24.54 52,267 24.69
-------------- --------- ---- ------ ------- ------
1,296,038 8.33 $15.97 479,153 $ 9.33
============== ========= ==== ====== ======= ======
</TABLE>
The fair value for options granted was estimated at the time of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for the two years ended June 30, 1997: Risk free interest rate of
6.17%, dividend yield of 0.0%, volatility factor of the expected market price of
the Company's common stock of 45%, and an average expected life of the option of
one year from the date of vesting. Under these assumptions, the estimated
weighted-average fair value of options granted during the fiscal years ended
June 30, 1997 and 1996, was $11.81 and $7.05, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In September 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the Purchase Plan). Under the Purchase Plan, employees have the opportunity to
purchase common stock at 85% of the average market value on the first or last
day of the plan period (as defined by the Purchase Plan), whichever is lower, up
to specified limits. An aggregate of 600,000 shares may be issued under the
Purchase Plan.
30
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for the Company's stock options and the Purchase Plan been
determined based on the fair value at the date of grant, as prescribed in SFAS
123, the Company's net income and net income per share would have been as
follows:
<TABLE>
<CAPTION>
($ in thousands, except per share data) 1997 1996
- --------------------------------------- ---- ----
<S> <C> <C>
Pro forma net income $ 9,058 $ 3,597
Pro forma net income per share $ 0.48 $ 0.27
</TABLE>
As stock options vest over several years and additional stock option grants
are expected to be made each year, the above pro forma disclosures are not
necessarily representative of pro forma effects on reported operations for
future years.
401(k) PLAN
The Company sponsors an employee savings plan (the Plan) as defined by Section
401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers
substantially all employees in the U.S. who elect to participate. Participants
have the opportunity to invest on a pre-tax basis in a variety of mutual fund
options. The Company matches 100% of each participant's voluntary contributions
up to 3% of gross salary per payroll period. Company contributions vest to the
participants in 20% increments for each year of employment and become fully
vested after five years of continuous employment. Company contributions to the
Plan were $1,053,000, $526,000, and $327,000 for the years ended June 30, 1997,
1996, and 1995, respectively.
NOTE 12. INCOME TAXES
Domestic and foreign income (loss) before income taxes for the three years ended
June 30, 1997, are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996 1995
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Domestic $10,835 $ 5,526 $ 350
Foreign 6,109 2,126 (10,660)
------- -------- --------
$16,944 $ 7,652 $(10,310)
======= ======== ========
</TABLE>
The provision for income taxes for the three years ended June 30, 1997, are as
follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996 1995
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 4,085 $ 2,202 $ 274
State 1,003 636 192
Foreign 1,444 427 78
------- ------- -----
6,532 3,265 544
------- ------- -----
Deferred:
Federal (175) (157) (164)
State (67) (52) (55)
Foreign (194) (3) (5)
------- ------- -----
(436) (212) (224)
------- ------- -----
$ 6,096 $ 3,053 $ 320
======= ======= =====
</TABLE>
31
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's consolidated effective income tax rate differed from the U.S.
federal statutory income tax rate as set forth below:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996 1995
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Income tax expense (benefit) at the federal statutory rate $ 5,931 $ 2,602 $(3,505)
State income taxes, net of federal benefit 968 460 92
Foreign rate differential 107 (234) (108)
Utilization of foreign net operating losses carryforwards (1,118) -- --
Nondeductible amortization of intangible assets 45 45 169
Nondeductible impairment of assets -- -- 3,348
Foreign operating losses without current benefit 142 26 334
Other 21 154 (10)
------- ------- -------
$ 6,096 $ 3,053 $ 320
======= ======= =======
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings have been
permanently reinvested. Such taxes, if any, are not expected to be significant.
Significant components of the Company's net deferred tax asset as of June 30,
1997 and 1996, are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
- ---------------- ---- ----
<S> <C> <C>
Deferred tax assets:
Foreign loss carryforwards $ 5,173 $ 6,048
Accrued expenses 943 497
Property and equipment -- 486
Allowance for doubtful accounts 816 491
Other 530 477
------- -------
Gross deferred tax assets 7,462 7,999
Deferred tax asset valuation allowance (3,372) (5,926)
------- -------
Total deferred tax assets 4,090 2,073
------- -------
Deferred contract profit (803) (274)
Property and equipment (730) --
Other (96) (292)
------- -------
Total deferred tax liabilities (1,629) (566)
------- -------
$ 2,461 $ 1,507
======= =======
</TABLE>
The net deferred tax assets are included in the consolidated balance sheet as of
June 30, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
- ---------------- ---- ----
<S> <C> <C>
Other current assets $ 3,011 $1,255
Other assets -- 252
Other current liabilities (466) --
Other liabilities (84) --
------- ------
$ 2,461 $1,507
======= ======
</TABLE>
The net deferred tax asset includes the tax effect of approximately $11 million
of pre-acquisition and post-acquisition foreign tax loss carryforwards available
to offset future liabilities for foreign income tax. Substantially all of the
foreign tax losses are carried forward indefinitely, subject to certain
limitations. A valuation allowance has been established for the future foreign
income tax benefits primarily related to income tax loss carryforwards and
temporary differences based on management's assessment that it is more likely
than not that such benefits will not be realized. Principally due to the use of
previously reserved foreign net operating loss carryforwards, the Company's
valuation allowance decreased to approximately $3.4 million at June 30, 1997,
from approximately $5.9 million at June 30, 1996. The ultimate realization of
the remaining loss carryforwards is dependent upon the generation of sufficient
taxable income in respective jurisdictions, primarily Germany.
32
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. GEOGRAPHIC INFORMATION
The Company's operations involve a single industry segment providing clinical
research and development services. The principal financial information by
geographic area for the three years ended June 30, 1997, is as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996 1995
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Net revenue:
North America $102,913 $ 54,179 $ 35,037
Europe 53,599 32,834 23,443
Asia/Pacific 3,167 993 93
-------- --------- --------
$159,679 $ 88,006 $ 58,573
======== ========= ========
Income (loss) from operations:
North America $ 9,859 $ 5,405 $ 1,166
Europe 3,639 1,266 (11,531)
Asia/Pacific 173 (176) --
-------- --------- --------
$ 13,671 $ 6,495 $(10,365)
======== ========= ========
Identifiable assets:
North America $170,689 $ 77,493 $ 25,288
Europe 29,619 24,752 17,927
Asia/Pacific 693 156 35
-------- --------- --------
$201,001 $ 102,401 $ 43,250
======== ========= ========
</TABLE>
NOTE 14. LEASES
The Company leases its facilities under operating leases which include renewal
and escalation clauses. Total rent expense was approximately $8.0 million, $5.1
million, and $4.3 million for years ended June 30, 1997, 1996, and 1995,
respectively. Future minimum lease payments due under noncancelable operating
leases and capital lease obligations are as follow:
<TABLE>
<CAPTION>
CAPITAL OPERATING
($ in thousands) LEASES LEASES
- ---------------- ------- ---------
<S> <C> <C>
1998 $352 $12,000
1999 26 11,452
2000 -- 9,328
2001 30 8,132
2002 -- 4,204
Thereafter -- 1,033
---- -------
Total obligations 408 $46,149
---- -------
Less amount representing interest 16
---- -------
$392
==== =======
</TABLE>
NOTE 15. RELATED PARTY TRANSACTIONS
Certain of the Company's Directors are related with certain of the Company's
customers. Net revenue recognized from these customers was $13.1 million, $8.1
million, and $3.0 million in fiscal 1997, 1996, and 1995, respectively. Amounts
included in accounts receivable at June 30, 1997 and 1996, were $3.3 million and
$1.9 million, respectively. Related party amounts included in accounts
receivable are on standard terms and manner of settlement.
33
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PAREXEL INTERNATIONAL CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity, and of cash
flows present fairly, in all material respects, the financial position of
PAREXEL International Corporation and its subsidiaries at June 30, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 6, 1997
34
<PAGE> 21
QUARTERLY OPERATING RESULTS & COMMON STOCK INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for the
years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1997
($ in thousands, except share data) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- ----------------------------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenue $ 33,030 $ 37,169 $ 42,261 $ 47,219
Income from operations 2,709 3,122 3,656 4,184
Net income 1,936 2,273 3,117 3,522
Net income per share 0.11 0.13 0.15 0.17
Range of common stock prices (1) $15.50 - 31.50 $22.88 - 31.88 $21.75 - 34.00 $19.50 - 34.00
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1996
($ in thousands, except share data) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- ----------------------------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenue $17,973 $ 20,616 $ 22,507 $ 26,910
Income from operations 1,159 1,445 1,736 2,155
Net income 742 956 1,297 1,604
Net income per share 0.07 0.08 0.09 0.10
Range of common stock prices (1) na $9.38 - 18.00(2) $13.00 - 22.25 $18.75 - 27.88
</TABLE>
(1) The range of common stock prices is based on the high and low sales price on
the Nasdaq National Market for the periods indicated.
(2) Stock prices for the Second Quarter of fiscal 1996 represent the period from
the date of the Company's initial offering, November 22, 1995, through December
31, 1995.
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRXL."
As of September 19, 1997, there were approximately 77 stockholders of record and
approximately 5,500 beneficial stockholders.
The Company has never declared or paid any cash dividends on its common stock
and does not anticipate paying any cash dividends in the foreseeable future. The
Company intends to retain future earnings for the development and expansion of
its business.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, except share data
and number of employees) 1997 1996 1995 1994 1993
- -------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net revenue $159,679 $ 88,006 $ 58,573 $58,002 $ 54,000
Income (loss) from operations 13,671 6,495 (10,365)(3) 3,692 298(1)
Net income (loss) 10,848 4,599 (10,630) 2,423(2) (2,157)
Net income (loss) per share $ 0.57 $ 0.34 $ (6.31) $ 0.22 $ (1.49)
FINANCIAL POSITION
Cash, cash equivalents and
marketable securities $ 95,259 $ 45,562 $ 6,815 $ 3,066 $ 8,669
Working capital 110,461 53,428 11,574 10,885 7,161
Total assets 201,001 102,401 43,250 45,936 45,457
Long-term debt 55 360 633 391 222
Stockholders' equity $137,825 $ 61,212 $ 15,524 $25,236 $ 21,847
OTHER DATA
Investment in property and
equipment $ 22,018 $ 5,039 $ 1,460 $ 1,979 $ 1,699
Depreciation and amortization $ 5,014 $ 2,343 $ 2,251 $ 2,435 $ 2,511
Number of employees 2,412 1,344 726 723 641
Average common and common
equivalent shares (4) 18,938 13,560 1,686 11,494 1,454
</TABLE>
(1) Income from operations includes a $3.3 million charge in connection with a
restructuring of operations in Germany.
(2) Net income includes $500,000 related to the cumulative effect of adopting
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
(3) Loss from operations includes an $11.3 million noncash charge due to the
write-down of impaired long-lived assets of the Company's German operations.
Income from operations on a pro forma basis excluding the impact of this charge
was $303,000. See Note 3 to Consolidated Financial Statements entitled,
"Impairment of Long-Lived Assets," to Consolidated Financial Statements for a
description of this matter.
(4) For the years ended June 30, 1993 and 1995, weighted average common shares
outstanding exclude common share equivalents (primarily convertible preferred
stock), as the inclusion of which would have had an anti-dilutive effect.
35
<PAGE> 1
EXHIBIT 21.1
PAREXEL INTERNATIONAL CORPORATION
LIST OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
PAREXEL
OWNERSHIP(1)
<S> <C>
Barnett International Corporation, a Massachusetts corporation 100%
PAREXEL International Holding Corporation, a Delaware corporation 100%
PAREXEL International Securities Corporation, a Massachusetts corporation 100%
PAREXEL International Inc., a Delaware corporation 100%
PAREXEL Unternehmensbeteiligung GmbH, a corporation organized under the
laws of Germany 100%
PAREXEL GmbH Independent Pharmaceutical Research Organization, a
corporation organized under the laws of Germany 100%
PAREXEL International Limited, a corporation organized under the laws of the
United Kingdom 100%
AFB CLINLAB Laborleistungs Organisationsgesellschaft GmbH, a
corporation organized under the laws of Germany 100%
PAREXEL International SARL, a corporation organized under the laws of France 100%
PAREXEL International SRL, a corporation organized under the laws of Italy 100%
PAREXEL International Pty Ltd, a corporation organized under the laws of
Australia 100%
PAREXEL International S.L., a corporation organized under the laws of Spain 100%
State and Federal Associates, Inc., a Virginia corporation 100%
PAREXEL International (Lansal) Limited, a corporation organized under the
laws of Israel 100%
Caspard Consultants, a corporation organized under the laws of France 100%
Sitebase Clinical Systems, Inc., a Massachusetts corporation 100%
Rescon, Inc., a Virginia corporation
Sheffield Statistical Services, a corporation organized under the laws of the
United Kingdom 100%
Pharmon , Ltd., a corporation organized under the law of Liechtenstein 100%
CLINNET, a corporation organized under the law of the United Kingdom 100%
PAREXEL ETT S.L., a corporation organized under the law of Spain 100%
</TABLE>
(1) Direct and indirect
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (File Nos.
333-19751 and 333-27487) and the Registration Statements on Form S-8 (File Nos.
33-80301 and 333-16205) of PAREXEL International Corporation and its
subsidiaries of our report dated August 6, 1997, appearing on page 34 of
PAREXEL International Corporation's Annual Report to Stockholders, which is
incorporated by reference in this Annual Report on Form 10-K. We also consent
to the application of such report to the Financial Statement Schedule for the
three years ended June 30, 1997 listed under Item 14(a) when such schedule is
read in conjunction with the financial statements referred to in our report.
The audit referred to in such report included this Financial Statement Schedule.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 30,335
<SECURITIES> 66,891
<RECEIVABLES> 65,720
<ALLOWANCES> 2,711
<INVENTORY> 0
<CURRENT-ASSETS> 171,867
<PP&E> 42,097
<DEPRECIATION> 14,567
<TOTAL-ASSETS> 201,001
<CURRENT-LIABILITIES> 61,406
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 137,625
<TOTAL-LIABILITY-AND-EQUITY> 201,001
<SALES> 0
<TOTAL-REVENUES> 159,679
<CGS> 0
<TOTAL-COSTS> 108,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,452
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 16,944
<INCOME-TAX> 6,096
<INCOME-CONTINUING> 10,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,848
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
